<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996.
Registration Nos. 33-37577
811-5439
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 9
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35
VARIABLE ACCOUNT D
OF
FORTIS BENEFITS INSURANCE COMPANY
(Exact Name of Registrant)
--------------------------------------
FORTIS BENEFITS INSURANCE COMPANY
(Name of Depositor)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
612-738-5590
------------------------------------
RHONDA J. SCHWARTZ, ESQ.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
-------------------------------------
It is proposed that this filing will be come effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485.
-----
X on May 1, 1996 pursuant to paragraph (b) of Rule 485.
-----
60 days after filing pursuant to paragraph (a)(i) of Rule 485.
-----
70 days after filing pursuant to paragraph (a)(ii) of Rule 485.
-----
on ______________ pursuant to paragraph (a)(ii) of Rule 485.
-----
If appropriate, check the following box:
This post-effective amendment designated a new effective date for
----- a previously filed post-effective amendment.
-----------------------------------------
An indefinite amount of the securities being offered has been registered
pursuant to a declaration under Rule 24f-2 under the Investment Company Act of
1940, set out in the Form N-4 Registration Statement contained in File No. 33-
19421. The registrant filed its Rule 24f-2 notice for the year ended December
31, 1995 on February 26, 1996.
-------------------------------------------
<PAGE>
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
Cross Reference Sheet Showing Location
of Information in Prospectus or
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FORM N-4 PROSPECTUS CAPTION
-------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Special Terms Used in This Prospectus
3. Synopsis of Highlights Summary of Certificate Features
4. Condensed Financial Information Further Information About
Fortis Benefits
5. General Description of Cover Page; Summary of Certificate
Registrant, Depositor and Features; Fortis Benefits/Fortis
Portfolio Companies Financial Group Member; The Variable
Account; Series Fund; The Fixed Account;
Further Information About Fortis Benefits
6. Deductions Summary of Certificate Features;
Charges and Deductions
7. General Description of Accumulation Period; General Provisions
Variable Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Summary of Certificate Features;
Accumulation Period
10. Purchase and Contract Value Accumulation Period
11. Redemptions Summary of Certificate Features;
Total and Partial Surrenders
12. Taxes Summary of Certificate Features;
Federal Tax Matters
13. Legal Proceedings None
14. Table of Contents of the Contents of the Statement of
Statement of Additional Additional Information
Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-4 STATEMENT OF ADDITIONAL
(cont'd.) INFORMATION CAPTION
--------- -----------------------
<S> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and Ownership of Securities
History (in Prospectus)
18. Services Services
19. Purchase of Securities Being Reduction in Charges
Offered
20. Underwriters Services
21. Calculation of Performance Appendix A to Statement of
Data Additional Information
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Variable Account Financial Statements
</TABLE>
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-800-2638
P.O. BOX 64272 500 BIELENBERG DRIVE EXTENSION 3057
ST. PAUL WOODBURY
MINNESOTA 55164 MINNESOTA 55125
This Prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued either on a group basis or as
individual contracts by Fortis Benefits Insurance Company ("Fortis Benefits").
Participation in a group contract will be accounted for by the issuance of a
certificate showing your interest under the group contract. Participation in an
individual contract is shown by the issuance of an individual annuity contract.
The certificate and the individual contract are hereafter both referred to as
the "Certificate". The minimum under a Certificate is generally $5,000 for the
initial and $1,000 for each subsequent purchase payment.
A Certificate allows you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through Fortis Benefits' Fixed
Account or a variable return accumulation option through Variable Account D (the
"Variable Account") of Fortis Benefits, or a combination of these two options.
Under the variable rate accumulation option, you can choose among one or more of
the following investment portfolios of Fortis Series Fund, Inc. (the "Series
Fund"): Money Market Series, U.S. Government Securities Series, Diversified
Income Series, Global Bond Series, High Yield Series, Asset Allocation Series,
Global Asset Allocation Series, Value Series, Growth & Income Series, S&P 500
Index Series, Blue Chip Stock Series, Global Growth Series, Growth Stock Series,
International Stock Series, and Aggressive Growth Series. The accompanying
Prospectus for Fortis Series Fund describes the investment objectives, policies
and risks of each of the Portfolios. Under the guaranteed interest accumulation
option, you can choose among ten different guarantee periods, each of which has
its own interest rate.
The Certificate provides several different types of retirement and death
benefits, including fixed and variable annuity income options. Within limits,
you may make partial surrenders of the Certificate Value or may totally
surrender the Certificate for its Cash Surrender Value.
You have the right to examine a Certificate for ten days from the time you
receive the Certificate and return it for a refund of all purchase payments that
have been made, without interest or appreciation or depreciation. However, in
certain states where permitted by state law the refund will be in the amount of
the then current Certificate Value.
This Prospectus gives prospective investors information about the Certificates
that they should know before investing. This Prospectus must be accompanied by a
current Prospectus of Fortis Series Fund, Inc. Both Prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated May 1, 1996, about certain aspects
of the Certificates has been filed with the Securities and Exchange Commission
and is available without charge, from Fortis Benefits at the address and phone
number printed above. The Table of Contents for the Statement of Additional
Information appears on page 24 of this Prospectus.
THESE POLICIES ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY; AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FORTIS
MASTERS
VARIABLE
ANNUITY
Certificates Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
<PAGE>
PROSPECTUS DATED
May 1, 1996
[FORTIS LOGO]
95961 (Ed. 5/96)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus.................................................................... 3
Information Concerning Fees and Charges.................................................................. 4
Summary of Certificate Features.......................................................................... 6
- Fortis Benefits/Fortis Financial Group Member...................................................... 8
- The Variable Account............................................................................... 8
- Series Fund........................................................................................ 8
The Fixed Account........................................................................................ 8
- Guaranteed Interest Rates/Guarantee Periods........................................................ 8
- Market Value Adjustment............................................................................ 9
- Investments by Fortis Benefits..................................................................... 9
Accumulation Period...................................................................................... 10
- Issuance of a Certificate and Purchase Payments.................................................... 10
- Certificate Value.................................................................................. 10
- Allocation of Purchase Payments and Certificate Value.............................................. 10
- Total and Partial Surrenders....................................................................... 11
- Benefit Payable on Death of Annuitant or Participant............................................... 11
The Annuity Period....................................................................................... 12
- Annuity Commencement Date.......................................................................... 12
- Commencement of Annuity Payments................................................................... 12
- Relationship Between Subaccount Investment Performance and Amount of Variable Annuity Payments..... 12
- Annuity Forms...................................................................................... 12
- Death of Annuitant or Other Payee.................................................................. 13
Charges and Deductions................................................................................... 13
- Premium Taxes...................................................................................... 13
- Charges Against the Variable Account............................................................... 13
- Tax Charge......................................................................................... 13
- Surrender Charge................................................................................... 13
- Miscellaneous...................................................................................... 14
- Reduction of Charges............................................................................... 14
General Provisions....................................................................................... 14
- The Certificates................................................................................... 14
- Postponement of Payments........................................................................... 14
- Misstatement of Age or Sex and Other Errors........................................................ 14
- Assignment......................................................................................... 14
- Beneficiary........................................................................................ 15
- Reports............................................................................................ 15
Rights Reserved By Fortis Benefits....................................................................... 15
Distribution............................................................................................. 15
Federal Tax Matters...................................................................................... 16
Further Information about Fortis Benefits................................................................ 17
- General............................................................................................ 17
- Selected Financial Data............................................................................ 18
- Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 18
- Liquidity and Capital Resources.................................................................... 19
- Competition........................................................................................ 20
- Regulation and Reserves............................................................................ 20
- Employees and Facilities........................................................................... 20
- Directors and Executive Officers................................................................... 21
- Executive Compensation............................................................................. 22
- Ownership of Securities............................................................................ 23
Voting Privileges........................................................................................ 23
Legal Matters............................................................................................ 23
Other Information........................................................................................ 23
Contents of Statement of Additional Information.......................................................... 24
Fortis Benefits Financial Statements..................................................................... 24
Appendix A--Sample Market Value Adjustment Calculations.................................................. A-1
Appendix B--Sample Death Benefit Calculations............................................................ B-1
Appendix C--Explanation of Expense Calculations.......................................................... C-1
</TABLE>
THE CERTIFICATES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS
<TABLE>
<S> <C>
ACCUMULATION The time period under a Certificate between the Certificate Issue Date and the Annuity
PERIOD Commencement Date.
ACCUMULATION A unit of measure used to calculate the Participants' interest in the Variable Account during
UNIT the Accumulation Period.
ANNUITANT A person during whose life annuity payments are to be made by Fortis Benefits under the
Certificate.
ANNUITY The date on which the Annuity Period commences.
COMMENCEMENT
DATE
ANNUITY PERIOD The time period following the Accumulation Period, during which annuity payments are made by
Fortis Benefits.
ANNUITY UNIT A unit of measurement used to calculate variable annuity payments.
BENEFICIARY The person entitled to receive benefits under the terms of the Certificate.
CASH SURRENDER The amount payable to the Participant on surrender of the Certificate after all applicable
VALUE adjustments and deduction of all applicable charges.
CERTIFICATE The date on which the Certificate becomes effective as shown on the Certificate Data Page.
ISSUE DATE
CERTIFICATE The sum of the Fixed Account Value and the Variable Account Value.
VALUE
FIXED ACCOUNT The name of the alternative under which purchase payments are allocated to Fortis Benefits
General Account.
FIXED ACCOUNT The amount of your Certificate Value which is in the Fixed Account.
VALUE
FIXED ANNUITY An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
OPTION that you designate one or more fixed payments.
GENERAL ACCOUNT All assets of Fortis Benefits other than those in the Variable Account, and other than those
in any other legally segregated separate account established by Fortis Benefits.
GUARANTEED The rate of interest we credit during any Guarantee Period, on an effective annual basis.
INTEREST RATE
GUARANTEE The period for which a Guaranteed Interest Rate is credited.
PERIOD
HOME OFFICE Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-800-2638, extension 3057;
Mailing address: P.O. Box 64272, St. Paul, MN 55164.
MARKET VALUE Positive or negative adjustment in Fixed Account Value that we make if such value is paid out
ADJUSTMENT more than fifteen days before or after the end of a Guarantee Period in which it was being
held.
NET PURCHASE The gross amount of a purchase payment less any applicable premium taxes or similar
PAYMENT governmental assessments.
NON-QUALIFIED Certificates that do not qualify for the special federal income tax treatment applicable in
CERTIFICATES connection with certain retirement plans.
PARTICIPANT The person or company named in the application for a Certificate, who is entitled to exercise
all rights and privileges of ownership under the Certificate during the Accumulation Period.
PORTFOLIO Each separate investment portfolio of Series Fund eligible for investment by the Variable
Account.
QUALIFIED Certificates that are qualified for the special federal income tax treatment applicable in
CERTIFICATES connection with certain retirement plans.
SERIES FUND Fortis Series Fund, Inc., a diversified, open-end management investment company in which the
Variable Account invests.
SEVEN YEAR The seventh anniversary of a Certificate Issue Date, and each subsequent seventh anniversary
ANNIVERSARY of that date.
SUBACCOUNTS The several Subaccounts of the Variable Account, each of which invests its assets in a
different Portfolio.
VALUATION DATE All business days except, with respect to any Subaccount, days on which the related Portfolio
does not value its shares. Generally, the Portfolios value their shares on each day the New
York Stock Exchange is open.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
VALUATION The period that starts at the close of regular trading on the New York Stock Exchange on a
PERIOD Valuation Date and ends at the close of regular trading on the exchange on the next succeeding
Valuation Date.
VARIABLE The segregated asset account referred to as Variable Account D of Fortis Benefits Insurance
ACCOUNT Company established to receive and invest purchase payments under Certificates.
VARIABLE The amount of your Certificate Value in the Subaccounts of the Variable Account.
ACCOUNT VALUE
VARIABLE An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
ANNUITY OPTION chosen by you one or more payments which vary in amount in accordance with the net investment
experience of the Subaccounts selected by the Annuitant.
WRITTEN REQUEST A written, signed and dated request, in form and substance satisfactory to Fortis Benefits and
received at our Home Office.
</TABLE>
INFORMATION CONCERNING FEES AND CHARGES
PARTICIPANT TRANSACTION CHARGES
<TABLE>
<S> <C>
Front-End Sales Charge Imposed on Purchases.............................. 0%
Maximum Surrender Charge for Sales Expenses.............................. 7%(1)
</TABLE>
<TABLE>
<CAPTION>
SURRENDER CHARGE AS A
NUMBER OF YEARS SINCE PERCENTAGE OF PURCHASE
PURCHASE PAYMENT WAS CREDITED PAYMENT
- ------------------------------ ----------------------
<S> <C>
Less than 1 7%
At least 1 but less than 2 6%
At least 2 but less than 3 5%
At least 3 but less than 4 4%
At least 4 but less than 5 3%
At least 5 but less than 6 2%
At least 6 but less than 7 1%
7 or more 0%
</TABLE>
<TABLE>
<S> <C>
Other Surrender Fees.............................................. 0%
Exchange Fee...................................................... 0%
ANNUAL CERTIFICATE ADMINISTRATION CHARGE................................. $0
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge................................ 1.25%
Variable Account Administrative Charge........................... .10%
---
Total Variable Account Annual Expenses......................... 1.35%
</TABLE>
--------------------------------
(1) This charge does not apply in certain cases such as partial surrenders
each year of up to 10% of "new purchase payments" as defined under the
heading "surrender charge," or payment of a death benefit.
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the Fixed Account more than fifteen days
from the end of a Guarantee Period are subject to a Market Value Adjustment.
The Market Value Adjustment may increase or reduce the Fixed Account Value. It
is computed pursuant to a formula that is described in more detail under
"Market Value Adjustment."
SERIES FUND ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOVERNMENT DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH &
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ---------- ----------- ------ ------ ---------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
and Management
Fee................ .30% .46% .47% .75% .50% .49% .90% .70% .70%
Other Expenses...... .10% .07% .08% .53% .13% .06% .37% .16% .11%
Total Series Fund
Operating
Expenses........... .40% .53% .55% 1.28% .63% .55% 1.27% .86% .81%
<CAPTION>
BLUE
S&P 500 CHIP GLOBAL GROWTH AGGRESSIVE
INDEX STOCK GROWTH STOCK INTERNATIONAL GROWTH
SERIES SERIES SERIES SERIES STOCK SERIES SERIES
------- ------ ------ ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory
and Management
Fee................ .40% .85% .70% .62% .85% .70%
Other Expenses...... .16% .16% .10% .05% .29% .11%
Total Series Fund
Operating
Expenses........... .56% 1.01% .80 .67% 1.14% .81%
</TABLE>
--------------------------------
(a) As a percentage of Series average net assets based on 1995 historical data
except that expenses of Blue Chip Stock Series, Value Series, and S&P 500
Index Series are based on an estimate of 1996 expenses.
4
<PAGE>
EXAMPLES*
If you SURRENDER your Certificate in full at the end of any of the time
periods shown below, you would pay the following cumulative expenses on a
$1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE
PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series.............................................. $ 81 $ 99 $ 120 $ 203
U.S. Government Securities Series................................ 82 103 127 217
Diversified Income Series........................................ 82 104 128 219
Global Bond Series............................................... 89 126 165 293
High Yield Series................................................ 83 106 132 227
Asset Allocation Series.......................................... 82 104 128 219
Global Asset Allocation Series................................... 89 125 164 292
Growth & Income Series........................................... 85 112 141 246
Growth Stock Series.............................................. 83 107 134 231
Global Growth Series............................................. 85 111 141 245
Aggressive Growth Series......................................... 85 112 141 246
International Stock Series....................................... 88 122 158 279
S&P 500 Index Series............................................. 82 104 129 220
Blue Chip Stock Series........................................... 87 118 151 266
Value Series..................................................... 85 113 144 251
</TABLE>
If you COMMENCE AN ANNUITY payment option, or do NOT surrender your
Certificate or commence an annuity payment option, you would pay the following
cumulative expenses on a $1,000 investment, assuming a 5% annual return on
assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE
PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series.............................................. $ 18 $ 54 $ 93 $ 203
U.S. Government Securities Series................................ 19 58 100 217
Diversified Income Series........................................ 19 59 101 219
Global Bond Series............................................... 26 81 138 293
High Yield Series................................................ 20 61 105 227
Asset Allocation Series.......................................... 19 59 101 219
Global Asset Allocation Series................................... 26 80 137 292
Growth & Income Series........................................... 22 67 114 246
Growth Stock Series.............................................. 20 62 107 231
Global Growth Series............................................. 22 66 114 245
Aggressive Growth Series......................................... 22 67 114 246
International Stock Series....................................... 25 77 131 279
S&P 500 Index Series............................................. 19 59 102 220
Blue Chip Stock Series........................................... 24 73 124 266
Value Series..................................................... 22 68 117 251
</TABLE>
--------------------------
* Does not include the effect of any Market Value Adjustment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
--------------------------
The foregoing tables and examples are included to assist you in understanding
the transaction and operating expenses imposed directly or indirectly under
the Certificates and Series Fund. Amounts for state premium taxes or similar
assessments will also be deducted, where applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
5
<PAGE>
SUMMARY OF CERTIFICATE FEATURES
The following summary should be read in conjunction with the detailed
information in this Prospectus. Variations from the information appearing in
this Prospectus due to requirements particular to your state are described in
supplements which are attached to this Prospectus, or in endorsements to the
Certificate as appropriate.
The Certificates are designed to provide individuals with retirement benefits
through the accumulation of Net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments.
"We," "our," and "us" mean Fortis Benefits Insurance Company. "You" and "your"
mean a reader of this Prospectus who is contemplating making purchase payments
or taking any other action in connection with a Certificate.
PURCHASE PAYMENTS
The initial purchase payment under a Certificate must be at least $5,000 ($2,000
for a Certificate pursuant to a qualified contract). Additional purchase
payments under a Certificate must be at least $1,000. See "Issuance of a
Certificate and Purchase Payments."
On the Certificate Issue Date, the initial purchase payment is allocated, as
specified by the Participant in the Certificate application, among one or more
of the Subaccounts of the Variable Account, or to one or more of the Guarantee
Periods in the Fixed Account, or to a combination thereof. Subsequent purchase
payments are allocated in the same way, or pursuant to different allocation
percentages that the Participant may subsequently request In Writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the Subaccounts of the Variable Account invests in shares of a
corresponding Portfolio of Series Fund. Certificate Value in each of the
Subaccounts of the Variable Account will vary to reflect the investment
experience of each of the corresponding Portfolios, as well as deductions for
certain charges.
Each Portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. A full
description of the Portfolios and their investment objectives, policies, risks
and expenses can be found in the current Prospectus for Series Fund, which
accompanies this Prospectus, and Series Fund Statement of Additional Information
which is available upon request.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the Participant to the Fixed Account earns a Guaranteed
Interest Rate. The level of the Guaranteed Interest Rate depends on the length
of the Guarantee Period selected by the Participant. We currently make available
ten different Guarantee Periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable Guarantee Period, a Market Value
Adjustment will be applied to increase or decrease the amount of Fixed Account
Value that is paid out. Accordingly, the Market Value Adjustment can result in
gains or losses to you.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CERTIFICATES ISSUED IN
THE STATES OF PENNSYLVANIA AND NEVADA.
For a more complete discussion of the Fixed Account investment options and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your Certificate
Value from one Subaccount to another or into the Fixed Account and, subject to
any Market Value Adjustment, from one Guarantee Period to another or into a
Subaccount. There is currently no charge for these transfers. We reserve the
right to restrict the frequency of or otherwise condition, terminate, or impose
charges upon, transfers from a Subaccount during the Accumulation Period. During
the Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Certificate Value--Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the Certificate Value may be
surrendered by the Participant before the earlier of the Annuitant's death or
the Annuity Commencement Date. Amounts surrendered may be subject to a surrender
charge and, in addition, amounts surrendered from the Fixed Account may be
subject to a Market Value Adjustment. See "Total and Partial Surrenders,"
"Surrender Charge" and "Market Value Adjustment." Particular attention should be
paid to the tax implications of any surrender, including possible penalties for
premature distributions. See "Federal Tax Matters."
ANNUITY PAYMENTS
The Contract provides several types of annuity benefits to Participants or other
persons they properly designate to receive such payments, including Fixed and
Variable Annuity Options. The Participant has considerable flexibility in
choosing the Annuity Commencement Date. However, the tax implications of an
Annuity Commencement Date must be carefully considered, including the
possibility of penalties for commencing benefits either too soon or too late.
See "Annuity Commencement Date," "Annuity Forms" and "Federal Tax Matters" in
this Prospectus and "Taxation Under Certain Retirement Plans" in the Statement
of Additional Information.
DEATH BENEFIT
In the event that the Annuitant or Participant dies prior to the Annuity
Commencement Date, a death benefit is payable to the Beneficiary. See "Benefit
Payable on Death of Annuitant or Participant."
RIGHT TO EXAMINE THE CONTRACT
The Participant can cancel a Certificate by delivering or mailing it, together
with a Written Request, to Fortis Benefits' Home Office or to the sales
representative through whom it was purchased, before the close of business on
the tenth day after receipt of the Certificate. If these items are sent by mail,
properly addressed and postage prepaid, they will be deemed to be received by
Fortis Benefits on the date postmarked. Fortis Benefits will refund to you all
purchase payments that have been made, without interest or appreciation or
depreciation. However, in certain states where permitted by state law the refund
will be in the amount of the then current Certificate Value.
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a Certificate may be limited by
the terms of any applicable employee benefit plan. These limitations may
restrict such things as total and partial surrenders, the amount or timing of
purchase payments that may be made, when annuity payments must start and the
type of annuity options that may be selected. Accordingly, you should
familiarize yourself with these and all other aspects of any retirement plan in
connection with which a Certificate is issued.
The record owner of the group variable annuity contract pursuant to which
Certificates will be issued will be a bank trustee whose sole function is to
hold record ownership of the contract or an employer (or the employer's
designee) in connection with an employee benefit plan. In the latter cases,
certain rights that a Participant otherwise would have under a Certificate may
be reserved instead by the employer.
TAX IMPLICATIONS
The tax implications for Participants or any other persons who may receive
payments under a Certificate, and those of any related employee benefit plan can
be quite important. A brief discussion of
6
<PAGE>
some of these is set out under "Federal Tax Matters" in this Prospectus and
"Taxation Under Certain Retirement Plans" in the Statement of Additional
Information, but such discussion is not comprehensive. Therefore, you should
consider these matters carefully and consult a qualified tax adviser before
making purchase payments or taking any other action in connection with a
Certificate or any related employee benefit plan. Failure to do so could result
in serious adverse tax consequences which might otherwise have been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the Certificate should be directed to your
sales representative, or Fortis Benefits' Home Office: P.O. Box 64272, St. Paul,
Minnesota, 55164: 1-800-800-2638, extension 3057. Purchase payments and Written
Requests should be mailed or delivered to the same Home Office address. All
communications should include the Certificate number, the Participant's name
and, if different, the Annuitant's name. The number for telephone transfers is
1-800-800-2638 (extension 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefit's Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1995.
<TABLE>
<CAPTION>
U.S. GOV'T DIVERSIFIED ASSET
MONEY MARKET SECURITIES INCOME GLOBAL BOND HIGH YIELD ALLOCATION
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Accumulation Units in Force... 26,915,975 10,989,914 59,213,865 574,142 2,321,419 148,700,081
Accumulation Unit Value....... $1.367592 $15.805335 $1.753817 $11.743159 $10.941082 $2.134216
JANUARY 2, 1995*
Accumulation Unit Value....... -- -- -- $10.0000 -- --
DECEMBER 31, 1994
Accumulation Units in Force... 30,697,754 12,271,738 62,744,615 -- 1,216,957 137,642,102
Accumulation Unit Value....... $1.311084 $13.483809 $1.515603 -- $9.834124 $1.773397
MAY 1, 1994*
Accumulation Unit Value....... -- -- -- -- $10.0000 --
DECEMBER 31, 1993
Accumulation Units in Force... 21,315,022 15,601,818 56,005,709 -- -- 106,834,367
Accumulation Unit Value....... $1.2789 $14.6095 $1.6211 -- -- $1.7970
DECEMBER 31, 1992
Accumulation Units in Force... 20,674,556 9,505,984 19,353,521 -- -- 49,688,937
Accumulation Unit Value....... $1.2614 $13.5294 $1.4572 -- -- $1.6646
MAY 1, 1992*
Accumulation Unit Value....... -- -- -- -- -- --
DECEMBER 31, 1991
Accumulation Units in Force... 7,235,168.03 3,595,759.23 6,056,976.03 -- -- 17,772,322.83
Accumulation Unit Value....... $1.2370 $12.9216 $1.3794 -- -- $1.5778
DECEMBER 31, 1990
Accumulation Units in Force... 5,632,146.27 747,992.12 2,352,517.74 -- -- 8,249,373.75
Accumulation Unit Value....... $1.1837 $11.4501 $1.2195 -- -- $1.2529
DECEMBER 31, 1989
Accumulation Units in Force... 754,306.35 70,701.23 1,306,717.80 -- -- 2,760,936.67
Accumulation Unit Value....... $1.1123 $10.7564 $1.1355 -- -- $1.2450
MAY 1, 1989*
Accumulation Unit Value....... -- 10.0000 -- -- -- --
DECEMBER 31, 1988
Accumulation Units in Force... 92,261.56 -- 493,007.87 -- -- 703,763.76
Accumulation Unit Value....... $1.0302 -- $1.0247 -- -- $1.0198
MAY 2, 1988*
Accumulation Unit Value....... $1.0000 -- $1.0000 -- -- $1.0000
<CAPTION>
GLOBAL ASSET GROWTH & GLOBAL INTERNATIONAL AGGRESSIVE
ALLOCATION INCOME GROWTH GROWTH STOCK STOCK GROWTH
------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Accumulation Units in Force... 1,117,596 4,204,164 10,769,830 160,247,280 1,157,064 3,033,587
Accumulation Unit Value....... $11.590086 $12.904129 $15.754217 $2.587482 $11.271900 $12.461083
JANUARY 2, 1995*
Accumulation Unit Value....... $10.0000 -- -- -- $10.0000 --
DECEMBER 31, 1994
Accumulation Units in Force... -- 1,489,517 10,055,959 148,657,108 -- 1,115,647
Accumulation Unit Value....... -- $10.083309 $12.236773 $2.054211 -- $9.723523
MAY 1, 1994*
Accumulation Unit Value....... -- $10.0000 -- -- -- $10.0000
DECEMBER 31, 1993
Accumulation Units in Force... -- -- 5,108,957 118,720,649 -- --
Accumulation Unit Value....... -- -- $12.7842 $2.1425 -- --
DECEMBER 31, 1992
Accumulation Units in Force... -- -- 698,720 79,582,321 -- --
Accumulation Unit Value....... -- -- $10.9889 $1.9963 -- --
MAY 1, 1992*
Accumulation Unit Value....... -- -- 10.0000 -- -- --
DECEMBER 31, 1991
Accumulation Units in Force... -- -- -- 42,946,178.33 -- --
Accumulation Unit Value....... -- -- -- $1.9658 -- --
DECEMBER 31, 1990
Accumulation Units in Force... -- -- -- 14,690,313.64 -- --
Accumulation Unit Value....... -- -- -- $1.2980 -- --
DECEMBER 31, 1989
Accumulation Units in Force... -- -- -- 3,507,971.91 -- --
Accumulation Unit Value....... -- -- -- $1.3578 -- --
MAY 1, 1989*
Accumulation Unit Value....... -- -- -- -- -- --
DECEMBER 31, 1988
Accumulation Units in Force... -- -- -- 684,667.95 -- --
Accumulation Unit Value....... -- -- -- $1.0083 -- --
MAY 2, 1988*
Accumulation Unit Value....... -- -- -- $1.0000 -- --
</TABLE>
- ------------------------------
* Accumulation Unit Value at Date of initial registration statement
effectiveness
Audited financial statements of the Variable Account are included in the
Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the Subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the Subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total return" is
the total change in value of an investment in the Subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
Financial information concerning Fortis Benefits is included in this Prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements."
7
<PAGE>
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company, the issuer of the Certificates, was founded
in 1910. At the end of 1995, Fortis Benefits had approximately $86 billion of
total life insurance in force. Fortis Benefits is a Minnesota corporation and is
qualified to sell life insurance and annuity contracts in the District of
Columbia and in all states except New York. Fortis Benefits is an indirectly
wholly-owned subsidiary of Fortis, Inc., which is itself indirectly owned 50% by
Fortis AMEV and 50% by Fortis AG. Fortis, Inc. manages the United States
operations for these two companies.
Fortis Benefits is a member of the Fortis Financial Group, a joint effort by
Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc., and Time
Insurance Company, offering financial products through the management, marketing
and servicing of mutual funds, annuities and life insurance.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
have merged their operating companies under the trade name of Fortis. The Fortis
group of companies is active in insurance, banking and financial services, and
real estate development in The Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. The Fortis group of companies had approximately
$140 billion in assets as of year-end 1995.
All of the guarantees and commitments under the Certificates are general
obligations of Fortis Benefits, regardless of whether the Certificate Value has
been allocated to the Separate Account or to the Fixed Account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the Certificates.
THE VARIABLE ACCOUNT
The Variable Account, which is a segregated investment account of Fortis
Benefits, was established as Variable Account D by Fortis Benefits pursuant to
the insurance laws of Minnesota as of October 14, 1987. Although the Variable
Account is an integral part of Fortis Benefits, the Variable Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Assets in the Variable Account
representing reserves and liabilities under Certificates and other variable
annuity contracts issued by Fortis Benefits will not be chargeable with
liabilities arising out of any other business of Fortis Benefits.
There are fifteen Subaccounts in the Variable Account. The assets in each
Subaccount are invested exclusively in a distinct class (or series) of stock
issued by Series Fund, each of which represents a separate investment Portfolio
within Series Fund. Income and both realized and unrealized gains or losses from
the assets of each Subaccount of the Variable Account are credited to or charged
against that Subaccount without regard to income, gains or losses from any other
Subaccount of the Variable Account or arising out of any other business we may
conduct. New Subaccounts may be added as new Portfolios are added to Series Fund
and made available. Correspondingly, if any Portfolios are eliminated from
Series Fund, Subaccounts may be eliminated from the Variable Account.
SERIES FUND
Series Fund is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
Series Fund has served as the investment medium for the Variable Account since
the Variable Account commenced operations. Series Fund is also the investment
medium for Variable Account C of Fortis Benefits, through which variable life
insurance policies are issued. Although we do not foresee any conflict between
the interests of Participants and life insurance policy owners, Series Fund'
Board of Directors will monitor to identify any material irreconcilable
conflicts which may develop and to determine what action, if any, should be
taken in response. If it becomes necessary for any separate account to replace
shares of any Portfolio with another investment, the Portfolio may have to
liquidate securities on a disadvantageous basis.
Fortis Benefits purchases and redeems Series Fund shares for the Variable
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the nine Portfolios of
Series Fund available for investment by the Variable Account. Each Portfolio
corresponds to one of the Subaccounts of the Variable Account. The assets of
each Portfolio are separate from the others and each Portfolio operates as a
separate investment portfolio whose performance has no effect on the investment
performance of any other Portfolio.
Any dividend or capital gain distributions attributable to Certificates are
automatically reinvested in shares of the Portfolio from which they are received
at the Portfolio's net asset value on the date paid. Such dividends and
distributions will have the effect of reducing the net asset value of each share
of the corresponding Portfolio and increasing, by an equivalent value, the
number of shares outstanding of the Portfolio. However, the value of your
interest in the corresponding Subaccount will not change as a result of any such
dividends and distributions.
The Portfolios of Series Fund available for investment by the Variable Account
are Money Market Series, U.S. Government Securities Series, Diversified Income
Series, Global Bond Series, High Yield Series, Asset Allocation Series, Global
Asset Allocation Series, Value Series, Growth & Income Series, S&P 500 Index
Series, Blue Chip Stock Series, Growth Stock Series, Global Growth Series,
International Stock Series, and Aggressive Growth Series. A full description of
the Portfolios, their investment policies and restrictions, the charges, the
risks attendant to investing in them, and other aspects of their operations is
contained in the Prospectus for Series Fund accompanying this Prospectus and in
the Statement of Additional Information for Series Fund referred to therein.
Additional copies of these documents may be obtained from your sales
representative or from our Home Office. The complete risk disclosure in the
Prospectus for the Diversified Income Series, High Yield Series, Asset
Allocation Series, and Global Asset Allocation Series should be read before
selection of them for investment.
THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS
Any amount allocated by the Participant to the Fixed Account earns a Guaranteed
Interest Rate commencing with the date of such allocation. This Guaranteed
Interest Rate continues for a number of years (not to exceed ten) selected by
the Participant. At the end of this Guarantee Period, the Participant's
Certificate Value in that Guarantee Period, including interest accrued thereon,
will be allocated to a new Guarantee Period of the same length unless Fortis
Benefits has received a Written Request from the Participant to allocate this
amount to a different Guarantee Period or periods or to one or more of the
Subaccounts. We must receive this Written Request at least three business days
prior to the end of the Guarantee Period. The first day of the new Guarantee
Period (or other reallocation) will be the day after the end of the prior
Guarantee Period. We will notify the Participant at least 45 days and not more
than 75 days prior to the end of any Guarantee Period.
We currently make available ten different Guarantee Periods, ranging from one to
ten years. Each Guarantee Period has its own Guaranteed
8
<PAGE>
Interest Rate, which may differ from those for other Guarantee Periods. From
time to time we will, at our discretion, change the Guaranteed Interest Rate for
future Guarantee Periods of various lengths. These changes will not affect the
Guaranteed Interest Rates being paid on Guarantee Periods that have already
commenced. Each allocation or transfer of an amount to a Guarantee Period
commences the running of a new Guarantee Period with respect to that amount,
which will earn a Guaranteed Interest Rate that will continue unchanged until
the end of that period. The Guaranteed Interest Rate will never be less than an
effective annual rate of 4%.
Fortis Benefits declares the Guaranteed Interest Rates from time to time as
market conditions dictate. Fortis Benefits advises a Participant of the
Guaranteed Interest Rate for a chosen Guarantee Period at the time a purchase
payment is received, a transfer is effectuated or a Guarantee Period is renewed.
Fortis Benefits has no specific formula for establishing the Guaranteed Interest
Rates for the Guarantee Periods. The rate may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with amounts allocated to the Guarantee Period. See
"Investments by Fortis Benefits." Fortis Benefits in determining Guaranteed
Interest Rates, may also consider, among other factors, the duration of a
Guarantee Period, regulatory and tax requirements, sales and administrative
expenses borne by Fortis Benefits, risks assumed by Fortis Benefits, Fortis
Benefits' profitability objectives, and general economic trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. FORTIS BENEFITS CANNOT PREDICT OR ASSURE THE
LEVEL OF ANY FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL
RATE OF 4%.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CERTIFICATES ISSUED IN
THE STATES OF PENNSYLVANIA AND NEVADA.
Information concerning the Guaranteed Interest Rates applicable to the various
Guarantee Periods at any time may be obtained from our Home Office or from your
sales representative.
MARKET VALUE ADJUSTMENT
If any Fixed Account Value is surrendered, transferred or otherwise paid out
before the end of the Guarantee Period in which it is being held, a Market Value
Adjustment will be applied, EXCEPT that NO Market Value Adjustment will be
applied to amounts that are paid out during the period beginning fifteen days
before and ending fifteen days after the end of a Guarantee Period in which it
was being held. This generally includes amounts that are paid out as a death
benefit pursuant to the Certificate, amounts applied to an annuity option, and
amounts paid as a single sum in lieu of an annuity.
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two Guaranteed Interest
Rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the Guaranteed Interest Rate for the
amount being transferred or withdrawn. The second rate is the Guaranteed
Interest Rate then being offered for new Guarantee Periods of the same duration
as that remaining in the Guarantee Period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease. Sample calculations are shown in Appendix A.
The Market Value Adjustment will be determined by multiplying the amount being
withdrawn or transferred from the Guarantee Period (before deduction of any
applicable surrender charge) by the following factor:
<TABLE>
<C> <C> <C> <C> <S>
1 + I n / 12
---------- - 1
( 1 + J + .005 )
</TABLE>
where,
- I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period,
- J is the Guaranteed Interest Rate then being offered for new Guarantee
Periods with durations equal to the number of years remaining in the
existing Guarantee Period (rounded up to the next higher number of years),
and
- N is the number of months remaining in the existing Guarantee Period
(rounded up to the next higher number of months).
INVESTMENTS BY FORTIS BENEFITS
Our obligations with respect to the Fixed Account are legal obligations of
Fortis Benefits and are supported by our General Account assets, which also
support obligations incurred by us under other insurance and annuity contracts.
Investments purchased with amounts allocated to the Fixed Account are the
property of Fortis Benefits and Participants have no legal rights in such
investments. Subject to applicable law, we have sole discretion over the
investment of assets in our General Account and in the Fixed Account, and
neither of such accounts is subject to registration under the Investment Company
Act of 1940.
Amounts in the Fortis Benefits' General Account and the Fixed Account will be
invested in compliance with applicable state insurance laws and regulations
concerning the nature and quality of investments for the General Account. Within
specified limits and subject to certain standards and limitations, these laws
generally permit investment in federal, state and municipal obligations,
preferred and common stocks, corporate bonds, real estate mortgages, real estate
and certain other investments. See Fortis Benefits' Financial Statements" for
information on Fortis Benefits' investments. Investment management for amounts
in the General Account and in the Fixed Account is provided to Fortis Benefits
by Fortis, Inc.
Fortis Benefits intends to consider the return available on the instruments in
which it intends to invest amounts allocated to the Fixed Account when it
establishes Guaranteed Interest Rates. Such return is only one of many factors
considered in establishing the Guaranteed Interest Rates. See "Guaranteed
Interest Rates/Guarantee Periods."
Fortis Benefits expects that amounts allocated to the Fixed Account generally
will be invested in debt instruments that approximately match Fortis Benefits'
liabilities with regard to the Guarantee Periods. Fortis Benefits expects that
these will include primarily the following types of debt instruments: (1)
securities issued by the United States Government or its agencies or
instrumentalities, which securities may or may not be guaranteed by the United
States Government; (2) debt securities which have an investment grade, at the
time of purchase, within the four highest grades assigned by Moody's Investors
Services, Inc. ("Moody's") (Aaa, Aa, A or Baa), Standard & Poor's Corporation
("Standard & Poor's") (AAA, AA, A or BBB), or any other nationally recognized
rating service; (3) other debt instruments including, but not limited to, issues
of or guaranteed by banks or bank holding companies and corporations, which
obligations although not rated by Moody's or Standard & Poor's, are deemed by
Fortis Benefits to have an investment quality comparable to securities which may
be purchased as stated above; and (4) other evidences of indebtedness secured by
mortgages or deeds of trust representing liens upon real estate. Notwithstanding
the foregoing, Fortis Benefits is not obligated
9
<PAGE>
to invest amounts allocated to the Fixed Account according to any particular
strategy, except as may be required by applicable state insurance laws and
regulations. See "Regulation and Reserves."
ACCUMULATION PERIOD
ISSUANCE OF A CERTIFICATE AND PURCHASE PAYMENTS
Fortis Benefits reserves the right to reject any application for a Certificate
or any purchase payment for any reason. If the issuing instructions can be
accepted in the form received, the initial purchase payment will be credited
within two Valuation Dates after the later of receipt of the issuing
instructions or receipt of the initial purchase payment at Fortis Benefits' Home
Office. If the initial purchase payment cannot be credited within five Valuation
Dates after receipt because the issuing instructions are incomplete, the initial
purchase payment will be returned unless the applicant consents to our retaining
the initial purchase payment and crediting it as of the end of the Valuation
Period in which the necessary requirements are fulfilled. The initial purchase
payment must be at least $5,000 ($2,000 for a Certificate issued pursuant to a
qualified plan).
The date that the initial purchase payment is applied to the purchase of the
Certificate is also the Certificate Issue Date. The Certificate Issue Date is
the date used to determine Certificate years, regardless of when the Certificate
is delivered. The crediting of investment experience in the Variable Account, or
a fixed rate of return in the Fixed Account, begins as of the Certificate Issue
Date.
The Participant may make additional purchase payments at any time after the
Certificate Issue Date and prior to the Annuity Commencement Date, as long as
the Annuitant is living. Purchase payments (together with any required
information identifying the proper Certificates and account to be credited with
purchase payments) must be transmitted to our Home Office. Additional purchase
payments are credited to the Certificate and added to the Certificate Value as
of the end of the Valuation Period in which they are received in good order.
Each additional purchase payment under a Certificate must be at least $1,000.
The total of all purchase payments for all Fortis Benefits annuities having the
same owner or participant, or annuitant, may not exceed $1 million (not more
than $500,000 allocated to the Fixed Account) without Fortis Benefits' prior
approval, and we reserve the right to modify this limitation at any time.
Purchase payments in excess of the initial minimum may be made by monthly draft
against the bank account of any Participant who has completed and returned to us
a special "Thrift-O-Matic" authorization form that may be obtained from your
sales representative or from our Home Office. Arrangements can also be made for
purchase payments by wire transfer, payroll deduction, military allotment,
direct deposit and billing. Purchase payments by check should be made payable to
Fortis Benefits Insurance Company.
If the Certificate Value is less than $1,000, we may cancel the Certificate on
any Valuation Date. We will notify the Participant at least 90 days in advance
of our intention to cancel the Certificate. Such cancellation would be
considered a full surrender of the Certificate.
CERTIFICATE VALUE
Certificate Value is the total of any Variable Account Value in all the
Subaccounts of the Variable Account pursuant to the Certificate, plus any Fixed
Account Value in all the Guarantee Periods.
There is no guaranteed minimum Variable Account Value. To the extent Certificate
Value is allocated to the Variable Account, you bear the entire investment risk.
DETERMINATION OF VARIABLE ACCOUNT VALUE. A Certificate's Variable Account Value
is based on Accumulation Unit values, which are determined on each Valuation
Date. The value of an Accumulation Unit for a Subaccount on any Valuation Date
is equal to the previous value of that Subaccount's Accumulation Unit multiplied
by that Subaccount's net investment factor (discussed directly below) for the
Valuation Period ending on that Valuation Date. At the end of any Valuation
Period, a Certificate's Variable Account Value in a Subaccount is equal to the
number of Accumulation Units in the Subaccount times the value of one
Accumulation Unit for that Subaccount.
The number of Accumulation Units in each Subaccount is equal to:
- Accumulation Units purchased at the time that any Net Purchase Payments or
transferred amounts are allocated to the Subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the Subaccount; less
- Accumulation Units redeemed to pay charges under the Contract.
NET INVESTMENT FACTOR. If a Subaccount's net investment factor is greater than
one, the Subaccount's Accumulation Unit value has increased. If the net
investment factor is less than one, the Subaccount's Accumulation Unit value has
decreased. The net investment factor for a Subaccount is determined by dividing
(1) the net asset value per share of the Portfolio shares held by the
Subaccount, determined at the end of the current Valuation Period, plus the per
share amount of any dividend or capital gains distribution made with respect to
the Portfolio shares held by the Subaccount during the current Valuation Period,
minus a per share charge for the increase, plus a per share credit for the
decrease, in any income taxes assessed which we determine to have resulted from
the investment operation of the subaccount or any other taxes which are
attributable to this Certificate, by (2) the net asset value per share of the
Portfolio shares held in the Subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
DETERMINATION OF FIXED ACCOUNT VALUE. A Certificate's Fixed Account Value is
guaranteed by Fortis Benefits. Therefore, Fortis Benefits bears the investment
risk with respect to amounts allocated to the Fixed Account, except to the
extent that (a) Fortis Benefits may vary the Guaranteed Interest Rate for future
Guarantee Periods (subject to the 4% effective annual minimum) and (b) the
Market Value Adjustment imposes investment risks on the Participant.
The Certificate's Fixed Account Value on any Valuation Date is the sum of its
Fixed Account Values in each Guarantee Period on that date. The Fixed Account
Value in a Guarantee Period is equal to the following amounts, in each case
increased by accrued interest at the applicable Guaranteed Interest Rate:
- The amount of Net Purchase Payments or transferred amounts allocated to
the Guarantee Period; less
- The amount of any transfers or surrenders out of the Guarantee Period.
ALLOCATION OF PURCHASE PAYMENTS AND CERTIFICATE VALUE
ALLOCATION OF PURCHASE PAYMENTS. In the application for a Certificate, the
Participant can allocate Net Purchase Payments, or portions thereof, to the
available Subaccounts of the Variable Account or to the Guarantee Periods in the
Fixed Account, or a combination thereof. Percentages must be in whole numbers
and the total allocation must equal 100%. The percentage allocations for future
Net Purchase Payments may be changed, without charge, at any time by sending a
Written Request to Fortis Benefits' Home Office. Changes in the allocation of
future Net Purchase Payments will be effective on the date we receive the
Participant's Written Request.
TRANSFERS. Transfers of Certificate Value from one available Subaccount to
another or into the Fixed Account, or from one Guarantee
10
<PAGE>
Period to another or to the Subaccount, can be made by the Participant in
Written Request to Fortis Benefits' Home Office, or by telephone transfer as
described below. There is currently no charge for any transfer, although
transfers from a Guarantee Period that are more than 15 days before or after the
expiration thereof are subject to a Market Value Adjustment. See "Market Value
Adjustment." The minimum transfer from a Subaccount or Guarantee Period is the
lesser of $1,000 or all of the Certificate Value in the Subaccount or Guarantee
Period. Irrespective of the above we may permit a continuing request for
transfers of lesser specified amounts automatically on a periodic basis.
However, we reserve the right to restrict the frequency of or otherwise
condition, terminate or impose charges (not to exceed $25 per transfer) upon
transfers. We will count all transfers between and among the Subaccounts of the
Variable Account and the Fixed Account as one transfer, if all the transfer
requests are made at the same time as part of one request. We will execute the
transfers and determine all values in connection with transfers as of the end of
the Valuation Period in which we receive the transfer request. The amount of any
positive or negative Market Value Adjustment, respectively, will be added to or
deducted from the transferred amount.
If you complete and return the telephone transfer section of the application,
transfers may be made pursuant to telephone instructions. We will honor
telephone transfer instructions from any person who provides the correct
identifying information. Fortis Benefits will not be responsible for, and you
will bear the risk of loss from, oral instructions, including fraudulent
instructions, which are reasonably believed to be genuine. We will employ
reasonable procedures to confirm that telephone instructions are genuine, but if
such procedures are not deemed reasonable, we may be liable for any losses due
to unauthorized or fraudulent instructions. Our procedures are to verify address
and social security number, tape record the telephone call, and provide written
confirmation of the transaction. We may modify or terminate our telephone
transfer procedures at any time. The number for telephone transfers is
1-800-800-2638.
Certain restrictions on very substantial investments in any one Subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
TOTAL SURRENDERS. The Participant may surrender all of the Cash Surrender Value
at any time during the life of the Annuitant and prior to the Annuity
Commencement Date by a Written Request sent to Fortis Benefits' Home Office. We
reserve the right to require that the Certificate be returned to us prior to
making payment, although this will not affect our determination of the amount of
the Cash Surrender Value. Cash Surrender Value is the Certificate Value at the
end of the Valuation Period during which the Written Request for the total
surrender is received by Fortis Benefits at its Home Office, less any applicable
surrender charge and after any Market Value Adjustment. See "Surrender Charge"
and "Market Value Adjustment."
The written consent of all collateral assignees and irrevocable beneficiaries
must be obtained prior to any total surrender. Surrenders from the Variable
Account will generally be paid within seven days of the date of receipt by
Fortis Benefits' Home Office of the Written Request. Postponement of payments
may occur, however, in certain circumstances. See "Postponement of Payment."
The amount paid upon total surrender of the Cash Surrender Value (taking into
account any prior partial surrenders) may be more or less than the total Net
Purchase Payments made. After a surrender of the Cash Surrender Value or at any
time the Certificate Value is zero, all rights of the Participant, Annuitant, or
any other person will terminate.
PARTIAL SURRENDERS. At any time prior to the Annuity Commencement Date and
during the lifetime of the Annuitant, the Participant may surrender a portion of
the Fixed Account Value and/or the Variable Account Value by sending to Fortis
Benefits' Home Office a Written Request. We will not accept a partial surrender
request unless the net proceeds payable to you as a result of the request are at
least $1,000. If the total Certificate Value in both the Variable Account and
Fixed Account would be less than $1,000 after the partial surrender, Fortis
Benefits will surrender the entire Cash Surrender Value under the Certificate.
In order for a request to be processed, the Participant must specify from which
Subaccounts of the Variable Account or Guarantee Periods of the Fixed Account a
partial surrender should be made.
We will surrender Accumulation Units from the Variable Account and/ or dollar
amounts from the Fixed Account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. The amount payable to
the Participant will be reduced by any applicable surrender charge and any
negative Market Value Adjustment, or increased by any positive Market Value
Adjustment. The partial surrender will be effective at the end of the Valuation
Period in which Fortis Benefits receives the Written Request for partial
surrender at its Home Office. Payments will generally be made within seven days
of the effective date of such request, although certain delays are permitted.
See "Postponement of Payment."
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters." Also, under tax deferred annuity Certificates pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR PARTICIPANT
If the Annuitant or Participant dies prior to the Annuity Commencement Date, a
death benefit will be paid to the Beneficiary. If more than one Annuitant has
been named, the death benefit payable upon the death of an Annuitant will only
be paid upon the death of the last survivor of the persons so named. The death
benefit will equal the greater of:
(1) the sum of all Net Purchase Payments made (less all prior surrenders and
previously-imposed surrender charges and prior negative Market Value
Adjustments),
(2) the Certificate Value adjusted by any Market Value Adjustment, as of the
date used for valuing the death benefit, or
(3) the Certificate Value adjusted by any Market Value Adjustment (less the
amount of any subsequent surrenders and surrender charges and negative
Market Value Adjustments in connection therewith), as of the
Certificate's Seven Year Anniversary immediately preceding the earlier
of a) the date of death of either the Participant or Annuitant or b) the
date either first reaches his or her 75th birthday. (See Appendix B for
Sample Death Benefit Calculations).
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our Home Office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a Written Request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
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The Beneficiary may (a) receive a single sum payment, which terminates the
Certificate, or (b) select an annuity option. If the Beneficiary selects an
annuity option, he or she will have all the rights and privileges of a payee
under the Certificate. If the Beneficiary desires an Annuity option, the
election should be made within 60 days of the date the death benefit becomes
payable. Failure to make a timely election can result in unfavorable tax
consequences. For further information, see "Federal Tax Matters."
We accept any of the following as proof of death: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; or a written statement by a medical doctor who
attended the deceased at the time of death.
If the Participant dies before the Annuitant and before the Annuity Commencement
Date with respect to a Non-Qualified Certificate certain additional requirements
are mandated by the Internal Revenue Code, which are discussed below under
"Federal Tax Matters-- Required Distributions for Non-Qualified Certificates."
It is imperative that Written Notice of the death of the Participant be promptly
transmitted to Fortis Benefits at its Home Office, so that arrangements can be
made for distribution of the entire interest in the Certificate to the
Beneficiary in a manner that satisfies the Internal Revenue Code requirements.
Failure to satisfy these requirements may result in the Certificate not being
treated as an annuity contract for federal income tax purposes, which could have
adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
The Participant may specify an Annuity Commencement Date in the application. The
Annuity Commencement Date marks the beginning of the period during which an
Annuitant or other payee designated by the Participant receives annuity payments
under the Certificate. We may not permit an Annuity Commencement Date which is
on or after the Annuitant's 75th birthday, and you should consult your sales
representative in this regard. The Annuity Commencement Date must be at least
two years after the Certificate Issue Date.
Depending on the type of retirement arrangement involved, amounts that are
distributed either too soon or too late may be subject to penalty taxes under
the Internal Revenue Code. See "Federal Tax Matters." You should consider this
carefully in selecting or changing an Annuity Commencement Date.
In order to advance or defer the Annuity Commencement Date, the Participant must
submit a Written Request during the Annuitant's lifetime. The request must be
received at our Home Office at least 30 days before the then-scheduled Annuity
Commencement Date. The new Annuity Commencement Date must also be at least 30
days after the Written Request is received. There is no right to make any total
or partial surrender during the Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
If the Certificate Value at the end of the Valuation Period which contains the
Annuity Commencement Date is less than $1,000, we may pay the entire Certificate
Value, without the imposition of any charges other than the premium tax charge,
if applicable, in a single sum payment to the Annuitant or other payee chosen by
the Participant and cancel the Certificate.
Otherwise, Fortis Benefits will apply (1) the Fixed Account Value to provide a
Fixed Annuity Option and (2) the Variable Account Value in any Subaccount to
provide a Variable Annuity Option using the same Subaccount, unless the
Participant has notified us by Written Request to apply the Fixed Account Value
and Variable Account Value in different proportions. Any such Written Request
must be received by us at our Home Office at least 30 days before the Annuity
Commencement Date.
Annuity payments under a Fixed or Variable Annuity Option will be made on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If more than one person is named as an
Annuitant, the Contract Owner may elect to name one of such persons to be the
sole Annuitant as of the Annuity Commencement Date. We reserve the right to
change the frequency of any annuity payment so that each payment will be at
least $50 ($20 in Texas). There is no right to make any total or partial
surrender during the Annuity Period.
The amount of each annuity payment will depend on the amount of Certificate
Value applied to an annuity option, the form of annuity selected and the age of
the Annuitant. Information concerning the relationship between the Annuitant's
sex and the amount of annuity payments, including special requirements in
connection with employee benefits plans, is set forth under "Calculations of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity form
selected. The dollar amount of variable annuity payments varies during the
annuity period based on changes in Annuity Unit Values for the Subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
If a Subaccount on which a variable annuity payment is based has an average
effective net investment return higher than 4% per annum during the period
between two such annuity payments, the Annuity Unit Value will increase, and the
second payment will be higher than the first. Conversely, if the Subaccount's
average effective net investment return over the period between the annuity
payments is less than 4% per annum, the Annuity Unit Value will decrease, and
the second payment will be lower than the first. "Net investment return," for
this purpose, refers to the Subaccount's overall investment performance, net of
the mortality and expense risk and administrative expense charges, which are
assessed at a nominal aggregate annual rate of 1.35%. We guarantee that the
amount of each variable annuity payment after the first payment will not be
affected by variations in our mortality experience or our expenses.
TRANSFERS. During the Annuity Period, the person receiving annuity payments may
make up to four transfers a year among Subaccounts. The current procedures for
and conditions on these transfers are the same as described above under
"Allocation of Purchase Payments and Certificate Value--Transfers." Transfers
from a Fixed Annuity Option are not permitted during the Annuity Period.
ANNUITY FORMS
The Participant may select an annuity form or change a previous selection by
Written Request, which must be received by us at least 30 days before the
Annuity Commencement Date. One annuity form may be selected, although as
discussed above, payments under that form may be received on a combination fixed
and variable basis. If no annuity form selection is in effect on the Annuity
Commencement Date, in most cases we automatically apply Option B (described
below), with payments guaranteed for 10 years. If the Certificate is issued
under certain retirement plans, however, federal pension law may require that
payments be made pursuant to Option D (described below), unless otherwise
elected. Tax laws and regulations may impose further restrictions to assure that
the primary purpose of the plan is distribution of the accumulated funds to the
employee.
The following options are available for fixed annuity payments and for variable
annuity payments.
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OPTION A, LIFE ANNUITY. Payments are made as of the first Valuation Date of each
monthly period during the Annuitant's life, starting with the Annuity
Commencement Date. No payments will be made after the Annuitant dies. It is
possible for the payee to receive only one payment under this option, if the
Annuitant dies before the second payment is due.
OPTION B, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS TO 20
YEARS. Payments are made as of the first Valuation Date of each monthly period
starting on the Annuity Commencement Date. Payments will continue as long as the
Annuitant lives. If the Annuitant dies before all of the guaranteed payments
have been made, we will continue installments of the guaranteed payments to the
Beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. Payments are made as of the first
Valuation Date of each monthly period starting with the Annuity Commencement
Date. Payments will continue as long as either the Annuitant or the joint
Annuitant is alive. Payments will stop when both the Annuitant and the joint
Annuitant have died. It is possible for the payee or payees under this option to
receive only one payment, if both Annuitants die before the second payment is
due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. Payments are made as
of the first Valuation Date of each monthly period starting with the Annuity
Commencement Date. Payments will continue as long as either the Annuitant or the
joint Annuitant is alive. If the Annuitant dies first, payments will continue to
the joint Annuitant at one-half the original amount. If the joint Annuitant dies
first, payments will continue to the Annuitant at the original full amount.
Payments will stop when both the Annuitant and the joint Annuitant have died. It
is possible for the payee or payees under this option to receive only one
payment if both Annuitants die before the second payment is due.
We also have other annuity forms available and information about them can be
obtained from your sales representative or by calling or writing to our Home
Office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by Fortis Benefits, the amounts, if any,
payable on the death of the Annuitant during the Annuity Period are the
continuation of annuity payments for any remaining guarantee period or for the
life of any joint Annuitant. In all such cases, the person entitled to receive
payments also receives any rights and privileges under the annuity form in
effect.
Additional rules applicable to such distributions under Non-Qualified
Certificates are described under "Federal Tax Matters--Required Distributions
for Non-Qualified Certificates." Though the rules there described do not apply
to Certificates issued in connection with qualified plans, similar rules apply
to the plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
The states of South Dakota and Wyoming impose a premium tax upon the receipt of
a purchase payment. In these states, and in any other state or jurisdiction
where premium taxes or similar assessments are imposed upon the receipt of
purchase payments, Fortis Benefits will pay such taxes on behalf of the
Participant and then deduct a charge for these amounts from the Certificate
Value upon the surrender, death of annuitant or Participant, or annuitization of
the Certificate. In jurisdictions where premium taxes or similar assessments are
imposed at the time annuity payments begin, Fortis Benefits will deduct a charge
for such amounts from the Certificate Value at that time. In such jurisdictions,
the charge will be deducted on a pro-rata basis from the then-current Fixed
Account Value and, by redemption of Accumulation Units, the then-current
Variable Account Value in each Subaccount. Similarly, Fortis Benefits may deduct
premium taxes from Certificate Value when no deduction was made from purchase
payments, but is subsequently determined to be due. Conversely, Fortis Benefits
will credit to the Certificate Value the amount of any deductions for premium
taxes or similar assessments that are subsequently determined not to be owed.
Applicable premium tax rates depend upon the Participant's then-current place of
residence. Applicable rates are subject to change by legislation, administrative
interpretations or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We will assess each Subaccount of the
Variable Account with a daily charge for mortality and expense risk at a nominal
annual rate of 1.25% of the average daily net assets of the Variable Account
(consisting of approximately .8% for mortality risk and approximately .45% for
expense risk). This charge is assessed during both the Accumulation Period and
the Annuity Period. We guarantee not to increase this charge for the duration of
the Certificate.
The mortality risk borne by Fortis Benefits arises from its obligation to make
annuity payments (determined in accordance with the annuity tables and other
provisions contained in the Certificate) for the full life of all Annuitants
regardless of how long all Annuitants or any individual Annuitant might live. In
addition, Fortis Benefits bears a mortality risk in that it guarantees to pay a
death benefit upon the death of an Annuitant or Participant prior to the Annuity
Commencement Date. No surrender charge is imposed upon the payment of a death
benefit which places a further mortality risk on the Company.
The expense risk assumed is that actual expenses incurred in connection with
issuing and administering the Certificate will exceed the limits on
administrative charges set in the Certificate.
If the administrative charges and the mortality and expense risk charge are
insufficient to cover the expenses and costs assumed, the loss will be borne by
the Company. Conversely, if the amount deducted proves more than sufficient, the
excess will be profit to the Company. The Company expects a profit from the
mortality and expense risk charge.
ADMINISTRATIVE EXPENSE CHARGE. We will assess each Subaccount of the Variable
Account with a daily charge at an annual rate of .10% of the average daily net
assets of the Subaccount. This charge is imposed during both the Accumulation
Period and the Annuity Period. This charge is to help cover administrative costs
such as those incurred in issuing Certificates, establishing and maintaining the
records relating to Certificates, making regulatory filings and furnishing
confirmation notices, voting materials and other communications, providing
computer, actuarial and accounting services, and processing Certificate
transactions.
The total anticipated revenues from the charge, on average, are not expected to
exceed the actual administrative costs incurred by Fortis Benefits and its
affiliates. There is no necessary relationship between the amount of
administrative charges imposed on a given Certificate and the amount of expenses
actually attributable to that Certificate.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
Certificate, other than for premium taxes and similar assessments when
applicable. We reserve the right to impose a charge for any other taxes that may
become payable by us in the future in connection with the Certificates or the
Separate Account.
SURRENDER CHARGE
No sales charge is collected or deducted at the time Net Purchase Payments are
applied under a Certificate. A surrender charge will be assessed on certain
total or partial surrenders. The amounts obtained from the surrender charge will
be used to partially defray expenses
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incurred in the sale of the Certificates, including commissions and other
promotional or distribution expenses associated with the marketing of the
Certificates, and costs associated with the printing and distribution of
prospectuses and sales material.
FREE SURRENDERS. The following amounts can be withdrawn from the Certificate
without a surrender charge:
- Any purchase payments received by us more than seven years prior to the
surrender date and that have not been previously surrendered;
- Any earnings that have not been previously surrendered;
- In any certificate year, up to 10% of the purchase payments received by us
less than seven years prior to the surrender date (whether or not the
purchase payments have been previously surrendered).
Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn prior to purchase payments which are still subject to a surrender
charge.
No surrender charge is imposed on annuitization (or payment of a single sum
because less than the minimum required Certificate Value is available to provide
an annuity at the Annuity Commencement Date). Nor is the surrender charge
deducted from the payment of any benefit upon the death of an Annuitant or
Participant.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of Certificates that have been in force for at least ten years
provided that the amount then subject to the surrender charge is less than 25%
of the Certificate Value. Since the Certificates have only been offered since
1991, no such waivers have yet been made. We reserve the right to change or
terminate this practice at any time, both for new and for previously issued
Certificates.
AMOUNT OF SURRENDER CHARGE. Surrender charges apply only if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders
(that is, if the amount being withdrawn includes purchase payments made less
than seven years prior to the surrender date). The surrender charges are:
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS CREDITED PURCHASE PAYMENT
- ------------------------------ ----------------------
<S> <C>
Less than 1 7%
At least 1 but less than 2 6%
At least 2 but less than 3 5%
At least 3 but less than 4 4%
At least 4 but less than 5 3%
At least 5 but less than 6 2%
At least 6 but less than 7 1%
7 or more 0%
</TABLE>
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient
to cover the actual costs of distribution, such costs will be paid from the
Company's General Account assets, which will include profit, if any, derived
from the mortality and expense risk charge.
NURSING CARE/HOSPITALIZATION WAIVER OF SURRENDER CHARGES. Surrender charges will
not be assessed when a total or partial withdrawal is requested: (1) after a
covered person has been confined in a hospital or skilled health care facility
for at least 60 consecutive days and the covered person continues to be confined
in the hospital or skilled care facility when the request is made; or (2) within
60 days following a covered person's discharge from a hospital or skilled health
care facility after confinement of at least 60 consecutive days. Confinement
must begin after the effective date of this provision.
Covered persons are the Certificate owner or owners and the spouse of any
Contract owner if such spouse is the Annuitant. Surrender Charges will not be
waived when a confinement is due to substance abuse, mental or personality
disorders without a demonstrable organic disease. A degenerative brain disease
such as Alzheimer's Disease is considered an organic disease.
This nursing care/hospitalization waiver of surrender charges is provided by
means of a rider to the Certificate, which has not been approved in all states.
Individuals applying for a Certificate should check with their Fortis Benefits
representative to determine if this rider is available in their state.
MISCELLANEOUS
Because the Variable Account invests in shares of the Portfolios of Series Fund,
the net assets of the Variable Account will reflect the investment advisory fees
and certain other expenses incurred by the Portfolios that are described in the
prospectus for Series Fund.
REDUCTION OF CHARGES
No surrender charge will be imposed under any Certificate owned by: (A) Fortis,
Inc. or its subsidiaries, and the following persons associated with such
companies, if at the Certificate Issue date they are: (1) officers and
directors; (2) employees; or (3) spouses of any such persons or any of such
persons' children, grandchildren, parents, grandparents, or siblings--or spouses
of any of these persons; (B) Series Fund directors, officers, or their spouses
(or such persons' children, grandchildren, parents, or grandparents--or spouses
of any such persons); and (C) representatives or employees (or their spouses) of
Fortis Investors (including agencies) or of other broker-dealers having a sales
agreement with Fortis Investors (or such persons' children, grandchildren,
parents, or grandparents--or spouses of any such persons).
GENERAL PROVISIONS
THE CERTIFICATES
The Certificate, copies of any applications, amendments, riders, or endorsements
attached to the Certificate and copies of any supplemental applications,
amendments, endorsements, or revised Certificate pages which are mailed to you
are the entire Certificate. Only an officer of Fortis Benefits can agree to
change or waive any provisions of a Certificate. Any change or waiver must be in
writing and signed by an officer of Fortis Benefits. The Certificates are
non-participating and do not share in dividends or earnings of Fortis Benefits.
POSTPONEMENT OF PAYMENT
Fortis Benefits may defer for up to 15 days the payment of any amount
attributable to a purchase payment made by check to allow the check reasonable
time to clear. For a description of other circumstances in which amounts payable
out of Variable Account assets could be deferred, see "Postponement of Payments"
in the Statement of Additional Information. Fortis Benefits may also defer
payment of surrender proceeds payable out of the Fixed Account for a period of
up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of the Annuitant has been misstated, any amount payable will
be that which the purchase payments paid would have purchased at the correct age
and sex. If we have made any overpayments because of incorrect information about
age or sex, or any other miscalculation, Fortis Benefits will deduct the
overpayment from the next payment or payments due. We add underpayments to the
next payment. The amount of any adjustment will be credited or charged with
interest at the effective annual rate of 4% per year.
ASSIGNMENT
Rights and interests under a Qualified Certificate may be assigned only in
certain narrow circumstances referred to in the Certificate. Participants and
other payees may assign their rights and interests under Non-Qualified
Certificates, including their ownership rights.
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We take no responsibility for the validity of any assignment. A change in
ownership rights must be made in writing and a copy must be sent to Fortis
Benefits' Home Office. The change will be effective on the date it was made,
although we are not bound by a change until the date we record it.
The rights under a Certificate are subject to any assignment of record at the
Home Office of Fortis Benefits. An assignment or pledge of a Certificate may
have adverse tax consequences. See below under "Federal Tax Matters."
BENEFICIARY
Before the Annuity Commencement Date and while the Annuitant is living, the
Participant may name or change a beneficiary or a contingent beneficiary by
sending a Written Request of the change to Fortis Benefits. Under certain
retirement programs, however, spousal consent may be required to name or change
a beneficiary, and the right to name a beneficiary other than the spouse may be
subject to applicable tax laws and regulations. We are not responsible for the
validity of any change. A change will take effect as of the date it is signed
but will not affect any payments we make or action we take before receiving the
Written Request. We also need the consent of any irrevocably named person before
making a requested change.
In the event of the death of a Participant or Annuitant prior to the Annuity
Commencement date the Beneficiary will be determined as follows:
- If there is any surviving Participant, the surviving Participant will be
the Beneficiary (this overrides any other beneficiary designation).
- If there is no surviving Participant, the Beneficiary will be the
beneficiary designated by the Participant.
- If there is no surviving Participant and no surviving beneficiary who has
been designated by the Participant, then the estate of the last surviving
Participant will be the Beneficiary.
REPORTS
We will mail to the Participant (or to the person receiving payments during the
annuity period), at the last known address of record, any reports and
communications required by any applicable law or regulation. You should
therefore give us prompt written notice of any address change. This will include
annual audited financial statements of the Series Fund, but not necessarily of
the Variable Account or Fortis Benefits.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its judgment,
they would best serve the interests of Participants and Annuitants or would be
appropriate in carrying out the purposes of the Certificates. Any changes will
be made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, Fortis Benefits will obtain your approval of the changes
and approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes Fortis Benefits may make
include:
- To operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any Subaccount to another Subaccount, or to one
or more separate accounts, or to the Fixed Account; or to add, combine or
remove Subaccounts in the Variable Account.
- To substitute, for the Portfolio shares held in any Subaccount, the shares
of another Portfolio of Series Fund or the shares of another investment
company or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the Certificate as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the Certificate in order
to conform with any action the above provisions permit Fortis Benefits to
take, including to change the way Fortis Benefits assesses charges, but
without increasing as to any then outstanding Certificate the aggregate
amount of the types of charges which Fortis Benefits has guaranteed.
DISTRIBUTION
The Certificates will be sold by individuals who, in addition to being licensed
by state insurance authorities to sell the Certificates of Fortis Benefits, are
also registered representatives of Fortis Investors, Inc. ("Fortis Investors"),
the principal underwriter of the Certificates or registered representatives of
other broker-dealer firms or representatives of other firms that are exempt from
broker dealer regulation. Fortis Investors and any such other broker-dealer
firms are registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as broker-dealers and are members of the
National Association of Securities Dealers, Inc.
As compensation for distributing the Certificates, Fortis Benefits pays Fortis
Investors 6.10% of all purchase payments plus .17% annually of Contract Values
in the Fixed Account and .02% annually of Contract Values in the Variable
Account. Fortis Investors pays a selling allowance not in excess of 6.10% of
purchase payments to other broker-dealer firms or exempt firms who sell the
Certificates. In addition, from time to time Fortis Investors may pay to these
firms an additional selling allowance of 1% of purchase payments. Also, Fortis
Investors pays servicing fees in the amount of 1/4 of 1% annually, based on the
amount above a certain minimum attributable to these firms.
Fortis Benefits may, under certain flexible compensation arrangements, pay
Fortis Investors a lesser or a greater selling allowance and a larger or a
smaller service fee than as set forth above, and Fortis investors may in turn
pay lesser or greater selling allowances and larger or smaller service fees to
its registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarially equivalent present values to the amounts of the selling allowances
and service fees set forth above. Additionally, registered representatives,
broker-dealer firms, and exempt firms may be eligible for additional
compensation based upon meeting certain production standards. Fortis Investors
may charge back commissions paid to others if the Certificate upon which the
commission was paid is surrendered or cancelled within certain specified time
periods. Fortis Benefits paid a total of $27,930,970, $31,643,856 and
$29,918,620 to Fortis Investors for annuity contract distribution services
during 1993, 1994 and 1995, respectively, $3,165,812 of which in 1993,
$4,065,075 of which in 1994 and $3,925,959 in 1995 was not reallowed to other
broker-dealers or exempt firms. In the distribution agreement, Fortis Benefits
has agreed to indemnify Fortis Investors (and its agents, employees, and
controlling persons) for certain damages and expenses, including those arising
under federal securities laws.
Fortis or Fortis Investors may also provide additional compenstion to
broker-dealers in connection with sales of Certificates. Compensation may
include financial assistance to broker-dealers in connection with conferences,
sales or training programs for their employees, seminars
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for the public, advertising, sales campaigns regarding Certificates, and other
broker-dealer sponsored programs or events. Compensation may include payment for
travel expenses incurred in connection with trips taken by invited sales
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature.
See Note 13 to the Notes to Fortis Benefits' Financial Statements as to amounts
it has paid to Fortis, Inc. for various services.
Fortis Investors is an indirect subsidiary of Fortis AMEV and Fortis AG and is
therefore under common control with Fortis Benefits. Fortis Investors' principal
business address is the same as that of our Home Office. Fortis Investors is not
obligated to sell any specific amount of interests under the Certificates.
$110,000,000 of interests in the Fixed Account and an indefinite amount of
interests in the Variable Account have been registered with the Securities and
Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in the opinion of Fortis Benefits are
currently in effect. These rules are based on laws, regulations and
interpretations which are subject to change at any time. This summary is not
comprehensive and is not intended as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a Certificate or related retirement plan.
NON-QUALIFIED CERTIFICATES
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Purchase payments made under Non-Qualified Certificates
are not excludible or deductible from the gross income of the Participant or any
other person. However, any increase in the accumulated value of a Non-Qualified
Certificate resulting from the investment performance of the Variable Account or
interest credited to the Fixed Account is generally not taxable to the
Participant or other payee until received by him or her, as surrender proceeds,
death benefit proceeds, or otherwise. The exception to this rule is that,
generally, Participants who are not natural persons ARE taxed annually on any
increase in the Certificate Value. However, this exception does not apply in all
cases, and you may wish to discuss this with your tax adviser.
The following discussion applies generally to Certificates owned by natural
persons.
In general, surrenders or partial withdrawals under Certificates are taxed as
ordinary income to the extent of the accumulated income or gain under the
Certificate. If a Participant assigns or pledges any part of the value of a
Certificate, the value so pledged or assigned is taxed to the Participant as
ordinary income to the same extent as a partial withdrawal.
With respect to annuity payment options, although the tax consequences may vary
depending on the option elected under the Certificate, until the investment in
the Certificate is recovered, generally only the portion of the annuity payment
that represents the amount by which the Certificate Value exceeds the
"investment in the Certificate" will be taxed. In general, a person's
"investment in the Certificate" is the aggregate amount of purchase payments
made by him or her. After an Annuitant's or other payee's "investment in the
Certificate" is recovered, the full amount of any additional annuity payments is
taxable. For variable annuity payments, in general, the taxable portion of each
annuity payment (prior to recovery of the "investment in the Certificate") is
determined by a formula which establishes the specific dollar amount of each
annuity payment that is not taxed. This dollar amount is determined by dividing
the "investment in the Certificate" by the total number of expected annuity
payments. For fixed annuity payments, in general, prior to recovery of the
"investment in the Certificate," there is no tax on the amount of each payment
which bears the same ratio to that payment as the "investment in the
Certificate" bears to the total expected value of the annuity payments for the
term of the payments. However, the remainder of each annuity payment is taxable.
The taxable portion of a distribution (in the form of an annuity or a single sum
payment) is taxed as ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all Certificates and other annuity contracts issued by us or our
affiliates to the Participant within the same calendar year will be treated as
if they were a single Certificate.
There is a 10% penalty under the Code on the taxable portion of a "premature
distribution." Generally, an amount is a "premature distribution" unless the
distribution is (1) made on or after the Participant or other payee reaches age
59 1/2, (2) made to a Beneficiary on or after death of the Participant, (3) made
upon the disability of the Participant or other payee, or (4) part of a series
of substantially equal annuity payments for the life or life expectancy of the
Participant or the Participant and Beneficiary. Premature distributions may
result, for example, from an early Annuity Commencement Date, an early
surrender, partial surrender or assignment of a Certificate or the early death
of an Annuitant who is not also the Participant or other person receiving
annuity payments under the Certificate.
A transfer of ownership of a Certificate, or designation of an Annuitant or
other payee who is not also the Participant, may result in certain income or
gift tax consequences to the Participant that are beyond the scope of this
discussion. A Participant contemplating any transfer or assignment of a
Certificate should contact a competent tax adviser with respect to the potential
tax effects of such transaction.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CERTIFICATES
In order that a Non-Qualified Certificate be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires (a) if any
person receiving annuity payments dies on or after the Annuity Commencement Date
but prior to the time the entire interest in the Certificate has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of the
person's death; and (b) if any Participant dies prior to the Annuity
Commencement Date, the entire interest in the Certificate will be distributed
(1) within five years after the date of that person's death or (2) as annuity
payments which will begin within one year of that Participant's death and which
will be made over the life of the Participant's designated Beneficiary or over a
period not extending beyond the life expectancy of that Beneficiary. However, if
the Participant's designated Beneficiary is the surviving spouse of the
Participant, the Certificate may be continued with the surviving spouse deemed
to be the new Participant. Where the Participant or other person receiving
payments is not a natural person, the required distributions provided by Section
72(A) apply upon the death of the primary Annuitant.
No regulations interpreting the requirements of Section 72(s) have yet been
issued (although proposed regulations have been issued interpreting similar
requirements for qualified plans). Fortis Benefits intends to review and modify
the Certificate if necessary to ensure that it complies with the requirements of
Section 72(s) when clarified by regulation or otherwise.
Generally, unless the Beneficiary elects otherwise, the above requirements will
be satisfied where the death occurs prior to the Annuity Commencement Date by
paying the death benefit in a single sum, subject to proof of the Participant's
death. The Beneficiary, however, may elect by Written Request to receive an
annuity option instead of a lump sum payment. However, if the election is not
made within 60 days
16
<PAGE>
of the date the single sum death benefit otherwise becomes payable, particularly
where the annuitant dies and the annuitant is not the Participant, the IRS may
disregard the election for tax purposes and tax the Beneficiary as if a single
sum payment had been made.
QUALIFIED CERTIFICATES
The Certificates may be used with several types of tax-qualified plans. The tax
rules applicable to Participants, Annuitants and other payees vary according to
the type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a retirement program recognized under the Code on
behalf of an individual are excludable from the individual's gross income for
tax purposes during the Accumulation Period. The portion, if any, of any
purchase payment made by or on behalf of an individual under a Certificate that
is not excluded from the individual's gross income for tax purposes during the
Accumulation Period constitutes the individual's "investment in the
Certificate." Aggregate deferrals under all plans at the employee's option may
be subject to limitations.
When annuity payments begin, the individual will receive back his or her
"investment in the Certificate" if any, as a tax-free return of capital. The
dollar amount of annuity payments received in any year in excess of such return
is taxable as ordinary income. When payments are received as an annuity, the
tax-free return of capital is treated as if received ratably over the entire
period of the annuity until fully recovered (as described above with respect to
Non-Qualified Certificates).
The Certificates are available in connection with the following types of
retirement plans: Section 403(b) annuity plans for employees of certain
tax-exempt organizations and public educational institutions; Section 401 or
403(a) qualified pension, profit-sharing or annuity plans; individual retirement
annuities ("IRAs") under Section 408(b); simplified employee pension plans
("SEPs") under Section 408(k); Section 457 unfunded deferred compensation plans
of public employers and tax-exempt organizations' and private employer unfunded
deferred compensation plans. The tax implications of these plans are further
discussed in the Statement of Additional Information under the heading "Taxation
Under Certain Retirement Plans."
WITHHOLDING
Annuity payments and other amounts received under Certificates are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly from the qualified plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require Fortis Benefits to disregard the recipient's election if the
recipient fails to supply Fortis Benefits with a "TIN" or taxpayer
identification number (social security number for individuals), or if the
Internal Revenue Service notifies Fortis Benefits that the TIN provided by the
recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investments
underlying the Certificates, in order for the Certificates to be treated as
annuities. Fortis Benefits believes that these diversification standards will be
satisfied. Failure to do so would result in immediate taxation to Participants
or persons receiving annuity payments of all returns credited to Certificates,
except in the case of certain Qualified Certificates. Also, current regulations
do not provide guidance as to any circumstances in which control over allocation
of values among different investment alternatives may cause Participants or
persons receiving annuity payments to be treated as the owners of Variable
Account assets for tax purposes. Fortis Benefits reserves the right to amend the
Certificates in any way necessary to avoid any such result. The Treasury
Department may establish standards in this regard through regulations or
rulings. Such standards may apply only prospectively, although retroactive
application is possible if such standards were considered not to embody a new
position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from one of these types of
products into a Certificate pursuant to the special annuity contract exchange
form we provide for this purpose is not generally a taxable event under the
Code, and your investment in the Certificate will be the same as your investment
in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(12) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions made after
December 31, 1988 may not be distributed in the case of hardship.
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
Fortis Benefits is engaged in the offer and sale of insurance products,
including fixed and variable life insurance policies, fixed and variable annuity
contracts, and group life, accident and health insurance policies. The Company
markets its products to small business and individuals through a national
network of independent agents, brokers, and financial institutions.
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<PAGE>
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from, and should be read in conjunction with,
the financial statements of Fortis Benefits included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991**
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy charges.............................. $1,232,329 $1,022,446 $ 955,053 $ 967,111 $ 439,348
Net investment income.................................... 203,537 162,514 153,657 156,431 89,638
Realized gains (losses) on investment.................... 55,080 (28,815) 73,623 37,928 5,234
Other income............................................. 33,085 35,958 27,100 26,176 6,668
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES......................................... $1,524,031 $1,192,103 $1,209,433 $1,187,646 $ 540,888
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total benefits and expenses.............................. $1,442,270 $1,157,651 $1,100,199 $1,111,530 $ 505,650
Federal Income taxes..................................... 27,891 11,595 31,090 25,660 12,776
Income before cumulative effect of accounting changes*... 53,870 22,857 78,144 50,456 22,462
Net income............................................... 53,870 22,857 81,707 50,456 22,462
BALANCE SHEET DATA
Total assets***.......................................... $5,143,012 $4,043,914 $3,584,139 $2,867,999 $2,409,881
Total liabilities........................................ 4,431,914 3,569,717 3,052,231 2,460,445 2,056,255
Total shareholder's equity***............................ 711,098 474,197 531,908 407,554 353,626
</TABLE>
- ------------------------
* Prior-year data has not been restated for the adoption of Statements 109 and
106 in 1993 (See Note 2 of the financial statements).
** The group life and health business of Mutual Benefit Life Insurance was
acquired in 1991 (See Note 3 of the financial statements).
*** The years ended December 31, 1995, 1994 and 1993, reflect the impact of the
adoption of Statement 115 (See Note 1 of the financial statements).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1995 COMPARED TO 1994
FINANCIAL CONDITION
Total assets rose to $5,143 million from $4,044 million in 1994. Half of the
increase was due to the assets held in separate accounts which grew from $1,213
million in 1994 to $1,781 million in 1995. Invested assets, excluding Separate
Accounts, increased from $2,372 million at December 31, 1994 to $2,936 million
at December 31, 1995 due to cash inflows and the appreciation of securities
available for sale. Fortis Benefits invests primarily in government and other
high-quality marketable fixed income securities with the objective of providing
reasonable returns while limiting liquidity and credit risk.
During 1995, the Company's mortgage loans on real estate increased $110 million
to $563 million. The Company has a high quality portfolio which has experienced
delinquency rates lower than the industry average. Similar to 1994, mortgage
loans represent 19% of the Company's invested assets.
Policy reserves and liabilities increased from $3,570 million at December 31,
1994 to $4,432 million at December 31, 1995. Aggregate reserves for traditional
life insurance and interest sensitive and investment products increased $222
million from $1,288 million at December 31, 1994 to $1,510 million at December
31, 1995. This increase in traditional life reserves is the result of strong
sales of the Company's group insurance and growth in the policyholder's
accumulations associated with interest sensitive products.
Policy reserves and claim liabilities for accident and health policies increased
by $35 million to nearly $833 million at December 31, 1995. This increase
reflects increased volume of business and increased liability costs for existing
disabilitants as reflected in the Company's disability reserves. Medical
reserves grew somewhat faster than premiums.
Liabilities related to separate accounts increased from $1,208 million at
December 31, 1994 to $1,757 million at December 31, 1995. This increase is
primarily the result of the increased sales of the Company's variable life and
annuity products and market appreciation during 1995.
RESULTS OF OPERATIONS
Total revenues were $1,524 million in 1995 compared to $1,192 million in 1994.
Increased premiums and policy charges in the last two years and higher-yielding
mortgage loans, offset by lower interest rates, increased the Company's net
investment income $41 million to $204 million. The favorable market conditions
generated realized gains on securities sold of $55 million in 1995 compared with
realized losses on investments of $29 million in 1994.
Traditional life premiums and policy charges increased by $52 million to $297
million in 1995. Traditional life insurance premiums increased by 21% during
1995 to $251 million. The Company has experienced strong sales of group life
products due to competitive pricing and marketing emphasis. Interest sensitive
and investment product policy charges, which consist primarily of cost of
insurance and expense charges on interest sensitive insurance policies,
increased 22% to $46 million in 1995 due to continued growth in these products.
Accident and health premiums increased $158 million in 1995 to $935 million from
$777 million in 1994 primarily as a result of increased medical and disability
sales. Disability insurance accounted for approximately one fourth of the
Company's group accident and health insurance revenues. The Company is one of
the leading writers of group disability coverages in the United States. This
market has been intensely competitive. The Company's strategy has been to
emphasize its claim management activities and refine its pricing to better
reflect the risks of various industries and occupations.
New regulations in several states have adversely affected current and future
profitability of certain medical lines. On October 24, 1995, the Company
announced that it will cease selling certain group medical products effective
January 1, 1996. The Company will continue to
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<PAGE>
renew and service existing medical business. In the long-term, the Company
expects this decision to have a favorable impact on its capital position. In the
short-term, management believes this product line change will not have a
material impact on the Company's operating results.
Total benefits to policyholders increased by $209 million in 1995 to $1,046
million. Traditional life, interest sensitive and investment products' claims
and benefits increased by $59 million to $276 million in 1995 reflecting
increased in-force group coverages and a larger in-force block of interest
sensitive and investment products.
Accident and health benefits increased to $770 million in 1995 from $620 million
in 1994. The increase is due primarily to increased disability business.
Amortization of deferred policy acquisition costs increased to $41 million in
1995 from $35 million in 1994. The increase in the amortization of interest
sensitive and investment products of $7 million to $17 million in 1995 from $10
million in 1994 is primarily due to amortization of costs related to products
sold in recent years.
Insurance commissions, net of deferrals, increased to $96 million from $86
million in 1994. These additional commissions resulted primarily from an
increase in sales of group coverages. General and administrative expenses
increased 29% to $255 million in 1995 from $197 million in 1994, approximately
in line with the increase in revenue. The increased expenses related primarily
to additional staffing and systems integration required to service the increased
amount of group insurance business written in 1995.
Income before federal income taxes and cumulative effect of accounting changes
totaled $82 million in 1995 compared to $34 million in 1994. Federal income
taxes were $28 million in 1995 compared to $12 million in 1994. The Company's
effective tax rate was comparable between years.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company have been met by funds provided from
operations and investment activity.
The primary uses of funds are to provide policy benefits, operating expenses,
commissions, and to purchase new investments. The Company expects its investment
and operating activities to continue to generate sufficient funds for these
purposes.
The National Association of Insurance Commissioners (NAIC) has implemented
risk-based capital standards to determine the capital requirements of a life
insurance company based upon the risks inherent in its operations. These
standards require the computation of a risk-based capital amount which is then
compared to the Company's actual total adjusted capital. The computation
involves applying factors to various financial data to address four primary
risks: asset default, adverse insurance experience, interest rate risk and
external events. These standards provide for regulatory intervention when the
percentage of total adjusted capital is below certain levels. Based on current
calculations of the risk-based capital standards, the Company's percentage of
total adjusted capital is well in excess of ratios which would require
regulatory attention.
Fortis Benefits has no long or short term debt. Less than 2% of the Company's
assets consisted of non-investment grade bonds as of December 31, 1995. The
Company received additional contributed capital of $50 million in 1995 and $13
million in 1994 from its parent company. Total shareholder's equity was $711
million as of December 31, 1995 compared to $474 million as of December 31,
1994. The net change in unrealized gains on investments accounted for $131
million of the increase.
1994 COMPARED TO 1993
FINANCIAL CONDITION
Total assets rose to $4.0 billion from $3.6 billion in 1993. The increase was
due in a large part to the increase in the assets held in separate accounts from
$975 million in 1993 to $1,213 million in 1994. Invested assets, excluding
Separate Accounts, increased from $2.3 billion at December 31, 1993 to $2.4
billion at December 31, 1994. Fortis Benefits invests primarily in government
and other high-quality marketable fixed income securities with the objective of
providing reasonable returns while limiting liquidity and credit risk.
During 1994, the Company's mortgage loans on real estate increased nearly $100
million to $450 million. The Company has a high quality portfolio which has
experienced delinquency rates lower than the industry average. Mortgage loans
represent approximately 19% of the Company's invested assets.
Policy reserves and liabilities increased from $3.0 billion at December 31, 1993
to $3.6 billion at December 31, 1994. Aggregate reserves for traditional life
insurance and interest sensitive and investment products contracts increased
$200 million from $1.1 billion at December 31, 1993 to $1.3 billion at December
31, 1994. This increase in traditional life reserves is the result of continued
strong sales of the Company's deferred income annuities and accumulation in
value of its interest sensitive products.
Policy reserves and claim liabilities for accident and health policies increased
by $47 million to nearly $800 million at December 31, 1994. This increase
reflects increased volume of business and increased liability costs for existing
disabilitants as reflected in the Company's disability reserves. Medical
reserves grew more slowly primarily due improved experience in its fully insured
line while overall reserves increased due to volume growth.
Liabilities related to separate accounts increased from $970 million at December
31, 1993 to $1.2 billion at December 31, 1994. This increase is the result of
new sales of the Company's variable life and annuity products during 1994.
RESULTS OF OPERATIONS
Total revenues were $1.2 billion in 1994. Deteriorating investment market
conditions in 1994 resulting from higher interest rates increased the Company's
investment income $9 million to $163 million while generating realized losses on
securities sold of $29 million. Realized gains were $74 million in 1993.
Premiums and policy charges increased by $67 million to $1,022 million in 1994.
Traditional life insurance premiums increased by 11% during 1994 to $208
million. The Company has experienced strong sales of life products due to
competitive pricing and marketing emphasis.
Interest sensitive and investment product policy charges, which consist
primarily of cost of insurance charges on interest sensitive insurance policies,
increased 31% to $38 million in 1994 due to continued growth in these products.
The Company is one of the leading writers of group disability coverages in the
United States. This market has been intensely competitive. The Company's
strategy has been to emphasize its claim management activities and refine its
pricing to better reflect the risks of various industries and occupations.
Medical premium growth has slowed over the past several years. The Company's
response has been to heavily emphasize its managed care products and focus on
the sale of partially self-funded coverages to larger employers. Accident and
health premiums increased in 1994 to $777 million from $738 million in 1993 as a
result of more aggressive pricing aided by less uncertainty in the market place.
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<PAGE>
Benefits and expenses increased by $58 million in 1994 to $1,158 million.
Traditional life, interest sensitive and investment products' claims and
benefits increased by $20 million to $217 million in 1994 reflecting increased
inforce group coverages and inforce block of interest sensitive and investment
products.
Accident and health benefits increased to $620 million in 1994 from $598 million
in 1993. The experience on the Company's medical products has improved in 1994
due to less uncertainty in the marketplace.
Amortization of deferred policy acquisition costs decreased slightly to $35
million in 1994 from $37 million in 1993. The majority of this, $23 million in
1994 and $24 million in 1993, is amortization relating to the block of business
acquired from Mutual Benefit Life in 1991.
Insurance commissions, net of deferrals, increased to $86 million from $77
million in 1993. The Company deferred $52 million of commissions in 1994
compared to $44 million in 1993. This additional deferral resulted from an
increase in sales of interest sensitive and investment products. General and
administrative expenses increased 6% to $197 million in 1994 from $186 million
in 1993 consistent with revenue growth from insurance operations.
Income before federal income taxes and cumulative effect of accounting changes
totaled $34 million in 1994 compared to $109 million in 1993. Federal income
taxes were $12 million in 1994 compared to $31 million in 1993. The decrease in
taxes was due primarily to tax credits resulting from realized losses in 1994
versus tax expense related to realized gains in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the company have been met by funds provided from
operations and investment activity.
The primary uses of funds are to provide policy benefits and reserves, pay
operating expenses and commissions, and to purchase new investments. The company
expects its investments and operating activities to continue to generate
sufficient funds for these purposes.
The National Association of Insurance Commissioners (NAIC) has implemented
risk-based capital standards to determine the capital requirements of a life
insurance company based upon the risks inherent in its operations. These
standards require the computation of a risk-based capital amount which is then
compared to the Company's actual total adjusted capital. The computation
involves applying factors to various financial data to address four primary
risks: asset default, adverse insurance experience, interest rate risk and
external events. These standards provide for regulatory intervention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels. Based on current calculations of the risk-based
capital standards, the Company's percentage to total adjusted capital is well in
excess of ratios which would require regulatory attention.
Fortis Benefits has no long or short term debt. Less than 2% of the Company's
assets consisted of non-investment grade bonds as of December 31, 1994 and the
Company does not expect this percentage to increase significantly in future
years. The company received additional contributed capital of $13 million in
1994 from its parent company. Total shareholder's equity was $474 million as of
December 31, 1994 compared to $532 million as of December 31, 1993.
COMPETITION
Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of products funded through Series Fund, the
investment results achieved by Fortis Advisers, Inc. Many other insurance
companies compete with Fortis Benefits in each of its markets, including on the
basis of price. Many of these companies, which include some of the largest and
best known insurance companies, have considerably greater resources than Fortis
Benefits. Best's Insurance Reports, Life-Health Edition, 1994 assigned Fortis
Benefits one of its highest ratings, A+ (Superior), as of December 31, 1993, for
financial position and operating performance.
Fortis Benefits has a rating of AA from Standard & Poor's. As defined by
Standard & Poor's, insurers rated AA offer "excellent financial security."
These ratings represent such rating agency's independent opinion of Fortis
Benefit's financial strength and ability to meet its policyholder obligations,
but have no relevance to the performance or quality of the assets in the
Variable Account.
REGULATION AND RESERVES
The Company is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. Fortis Benefits'
operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of Fortis Benefits under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include health care reform, employee benefit regulation, controls on
medicare costs and medical entitlement programs, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.
Pursuant to state insurance laws and regulations, Fortis Benefits is obligated
to carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions about,
among other things, future claims experience and investment returns. Neither the
reserve requirements nor the other aspects of state insurance regulation provide
absolute protection to holders of insurance contracts, including the
Certificates, if Fortis Benefits were to incur claims or expenses at rates
significantly higher than expected (due, for example, to acquired immune
deficiency syndrome or other infectious diseases or catastrophes) or significant
unexpected losses on its investments.
EMPLOYEES AND FACILITIES
Fortis Benefits has approximately 2,000 employees and considers its employee
relations to be excellent; Fortis Benefits owns its Home Office building,
consisting of 295,000 square feet in Woodbury, Minnesota. It also has
administrative offices in Kansas City, Missouri. Fortis Benefits leases a
portion of that building consisting of 297,000 square feet. In addition Fortis
Benefits has several regional claims and sales offices throughout the United
States. Fortis Benefits occupies approximately 100% of its home office and 70%
of its administration building, which it expects will be adequate for its
purposes for the foreseeable future.
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DIRECTORS AND EXECUTIVE OFFICERS
Set forth is information concerning the Company's directors and executive
officers, to the extent responsible for its variable annuity operations,
together with their business experience and principal occupations for the past
five years:
<TABLE>
<S> <C>
OFFICER-DIRECTORS
Dean C. Kopperud, 43 Senior Vice President--Marketing and Sales; also
Director since 1995 officer of affiliated companies.
Robert Brian Pollock, 41 President and Chief Executive Officer; before then
Director Since 1988 Senior Vice President--Life and Disability.
Thomas Michael Keller, 48 Executive Vice President; before then Senior Vice
Director since 1990 President of Fortis, Inc.
OTHER DIRECTORS
Allen Royal Freedman, 56 Chairman and Chief Executive Officer of Fortis, Inc.
Chairman of the Board
since 1995
Henry Carroll Mackin, 54 Executive Vice President of Fortis, Inc.
Director Since 1990
Arie Aristide Fakkert, 52 Assistant General Manager of Fortis International
Director Since 1987 N.V.
EXECUTIVE OFFICERS
Rhonda Schwartz, 37 Senior Vice President and General Counsel--Life and
Investment Products; before then secretary and
General Counsel of Fortis Inc.
Anthony J. Rotondi, 50 Senior Vice President--Manufacturing and Information
Technology; also officer of affiliated companies.
Larry A. Medin, 46 Senior Vice President--Sales; before then Senior
Vice President--Western Divisional Officer, Colonial
Group, Inc.
Michael John Peninger, 41 Senior Vice President and Chief Financial Officer
Jon H. Nicholson, 46 Senior Vice President--Annuities.
Anthony J. Rotondi, 50 Senior Vice President--Life Operations
</TABLE>
Fortis Benefits' officers serve at the pleasure of the board of directors, and
members of the board serve without compensation (except for expenses of
attending board meetings), until their successors are duly elected and
qualified.
Mr. Freedman is a director of Systems and Computer Technology Corporation and
Genesis Health Ventures. Mr. Freedman is also a director of the following
registered investment companies: Fortis Equity Portfolios, Inc.; Fortis Growth
Fund, Inc.; Fortis Fiduciary Fund, Inc., Fortis Income Portfolios, Inc.; Fortis
Securities, Inc.; Fortis Tax-Free Portfolios, Inc.; Fortis Money Portfolios,
Inc.; Fortis Advantage Portfolios, Inc.; Fortis World Wide Portfolios, Inc.;
Fortis Series Fund, Inc.; Special Portfolios, Inc.
21
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of the
executive officers of Fortis Benefits.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- ----------------------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION PAYOUTS COMPENSATION (1)
- ------------------------------------------- --------- --------- --------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Pollock 1995 $ 300,888 $ 84,000 $ 0 $ 0 $ 14,851
President and Chief Executive Officer 1994 200,000 84,000 0 0 14,150
1993 140,908 60,000 0 40,907 11,328
- -----------------------------------------------------------------------------------------------------------------------------
James R. Faust 1995 301,121 37,150 0 47,494 14,829
Executive Vice President-- 1994 200,000 37,150 0 51,236 12,346
Marketing and Sales 1993 189,785 102,100 0 0 14,150
- -----------------------------------------------------------------------------------------------------------------------------
Anthony J. Rotondi 1995 213,672 54,375 0 0 12,667
Sr. Vice President-- 1994 150,000 54,375 0 0 12,866
Manufacturing and Information Technology 1993 142,000 54,400 0 0 11,816
- -----------------------------------------------------------------------------------------------------------------------------
William D. Greiter 1995 210,771 38,808 0 0 12,528
Senior Vice President 1994 144,000 36,750 0 0 10,834
1993 138,000 105,570 0 61,063 8,994
- -----------------------------------------------------------------------------------------------------------------------------
Michael John Peninger 1995 206,703 39,150 0 0 12,249
Senior Vice President and 1994 135,000 39,150 0 0 10,116
Chief Financial Officer 1993 125,487 33,594 0 25,708 8,994
</TABLE>
- ------------------------
1 This column includes contributions made by Fortis Benefits for the year for
the benefit for the named individual to a defined contribution retirement
plans.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
(LONG-TERM INCENTIVE PLAN(1) AWARDS IN LAST FISCAL YEAR)
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF UNTIL NON-STOCK PRICE BASED PLANS
SHARES, UNITS OR MATURATION OR ----------------------------------
NAME OTHER RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
- --------------------------------------------------- ---------------- --------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Robert B. Pollock.................................. 172 Units 3 years 0 Units 348 Units 447 Units
James R. Faust..................................... 232 Units 3 years 0 Units 284 Units 852 Units
Anthony J. Rotondi................................. 216 Units 3 years 0 Units 170 Units 510 Units
William D. Greiter................................. 140 Units 3 years 0 Units 184 Units 552 Units
Michael John Peninger.............................. 151 Units 3 years 0 Units 178 Units 534 Units
</TABLE>
- ------------------------
1 Units shown in this table represent performance units granted pursuant to an
Executive Incentive Compensation Plan in which officers and managers of
Fortis Benefits participate. Awards are made pursuant to this plan based on
the employee's position with Fortis Benefits and salary level and the extent
to which the employee and Fortis Benefits meet certain performance
objectives over 1- and 3-year periods. Employees may elect to defer awards
payable to them under this plan.
As additional compensation to its employees and executive officers, Fortis
Benefits has an Employees' Uniform Retirement Plan and an Executive Retirement
Plan which generally provide an annual annuity benefit upon retirement at age 65
(or a reduced benefit upon early retirement) equal to: .9% of the employee's
Average Annual compensation up to the employee's social security covered
compensation, plus 1.3% of compensation above the social security covered
compensation, up to $235,840, as adjusted by an index, multiplied by the
employee's years of credited services.
In addition, Fortis Benefits provides an unfunded Supplemental Executive
Retirement Plan for certain executives of Fortis Benefits. Mr. Pollock is the
only named executive currently covered by the Plan. Under the Supplemental
Executive Retirement Plan, the annual benefit is calculated by subtracting the
benefit payable under the Employees' Uniform Retirement Plan and the estimated
Social Security benefit from the "Target Benefit." The "Target Benefit" is equal
to 50% of Final Average Salary (average salary over the final 36 consecutive
months of employment) reduced for less than 20 years of service at retirement.
Upon retirement prior to age 65 and after attaining age 55 with 10 years of
service, special early retirement rules apply. The salary used to calculate the
Final Average Salary consists of regular compensation and the annual target
incentive bonus of the participant. The estimated annual benefit of Mr. Pollock,
based on current compensation levels, under this plan is $33,504.
The following table illustrates the COMBINED estimated life annuity benefit
payable from the Employees' Uniform Retirement Plan and Executive Retirement
Plan to employees with the specified Final Average Salary and years of service
upon retirement.
22
<PAGE>
PENSION PLAN TABLE*
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------
FINAL AVERAGE SALARY 10 15 20 25 30 35
- --------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$125,000................... $ 15,213 $ 22,820 $ 30,426 $ 38,033 $ 45,640 $ 53,246
150,000................... 18,463 27,695 36,926 46,158 55,390 64,621
175,000................... 21,713 32,570 43,426 54,283 65,140 75,996
200,000................... 24,963 37,445 49,926 62,408 74,890 87,371
225,000................... 28,141 42,211 56,282 70,352 84,423 98,493
250,000+.................. 29,557 44,336 59,115 73,894 88,672 103,451
</TABLE>
- ------------------------
* The table excludes social security benefits. In general, for the purposes of
these plans, compensation includes salary and bonuses. The credited years of
service with Fortis Benefits for these individuals named in the Summary
Compensation Table above are as follows: 14, 4, 21, 10, and 9, respectively.
OWNERSHIP OF SECURITIES
All of Fortis Benefits' outstanding shares are owned by Time Insurance Company,
515 West Wells, Milwaukee, Wisc. 53201, which is itself wholly owned by Fortis,
Inc., One Chase Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn is
wholly owned by Fortis International, Inc., which is wholly owned by AMEV/VSB
1990 N.V., both of which share the same address with N.V. AMEV., Archimedeslaan
10, 3584 BA, Utrecht, The Netherlands. AMEV/VSB 1990 N.V. is 50% owned by Fortis
AMEV and 50% owned, through certain subsidiaries, by Fortis AG, Boulevard Emile
Jacqmain 53, 1000 Brussels, Belgium.
VOTING PRIVILEGES
In accordance with its view of current applicable law, Fortis Benefits will vote
shares of each of the Portfolios which are attributable to a Certificate at
regular and special meetings of the shareholders of Series Fund in proportion to
instructions received from the persons having the voting interest in the
Certificate as of the record date for the corresponding Series Fund shareholders
meeting. Participants have the voting interest during the Accumulation Period,
persons receiving annuity payments during the Annuity Period, and Beneficiaries
after the death of the Annuitant or Participant. However, if the Investment
Company Act of 1940 or any rules thereunder should be amended or if the present
interpretation thereof should change, and as a result Fortis Benefits determines
that it is permitted to vote shares of the Portfolios in its own right, it may
elect to do so.
During the Accumulation Period, the number of shares of a Portfolio attributable
to a Certificate is determined by dividing the amount of Certificate Value in
the corresponding Subaccount pursuant to the Certificate as of the record date
for the shareholders meeting by the net asset value of one Portfolio share as of
that date. During the Annuity Period, or after the death of the Annuitant or
Participant, the number of Portfolio shares deemed attributable to the
Certificate will be computed in a comparable manner, based on the liability for
future variable annuity payments allocable to that Subaccount under the
Certificate as of the record date. Such liability for future payments will be
calculated on the basis of the mortality assumptions and the assumed interest
rate used in determining the number of Annuity Units credited to the Certificate
and the applicable Annuity Unit value on the record date. During the Annuity
Period, the number of votes attributable to a Certificate will generally
decrease since funds set aside to make the annuity payments will decrease.
Fortis Benefits will vote shares for which it has received no timely
instructions, and any shares attributable to excess amounts Fortis Benefits has
accumulated in the related Subaccount, in proportion to the voting instructions
which it receives with respect to all Certificates and other variable annuity
contracts participating in a Portfolio. To the extent that Fortis Benefits or
any affiliated company holds any shares of a Portfolio, they will be voted in
the same proportion as instructions for that Portfolio that are received from
persons holding the voting interest with respect to all Fortis Benefits separate
accounts participating in that Portfolio. Shares held by separate accounts other
than the Variable Account will in general be voted in accordance with
instructions of participants in such other separate accounts. This diminishes
the relative voting influence of the Certificates.
Each person having a voting interest in a Subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to the procedures described above, these persons
may give instructions regarding the election of the Board of Directors of Series
Fund, ratification of the selection of its independent auditors, the approval of
the investment managers of a Portfolio, changes in fundamental investment
policies of a Portfolio and all other matters that are put to a vote by Series
Fund shareholders.
LEGAL MATTERS
The legality of the Certificates described in this Prospectus has been passed
upon by Douglas R. Lowe, Esquire, Associate General Counsel with the law
department of Fortis Benefits. Messrs. Freedman, Levy, Kroll & Simonds,
Washington, D.C., have advised Fortis Benefits on certain federal securities law
matters.
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Certificates discussed in this Prospectus. Not all of the information set forth
in the Registration Statement, amendments and exhibits thereto has been included
in this Prospectus. Statements contained in this Prospectus concerning the
content of the Certificates and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
23
<PAGE>
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fortis Benefits and the Variable Account....... 2
Calculation of Annuity Payments................ 2
Postponement of Payments....................... 3
Services....................................... 4
- Safekeeping of Variable Account Assets..... 4
- Experts.................................... 4
- Principal Underwriter...................... 4
Limitations on Allocations..................... 4
Change of Investment Adviser or Investment
Policy........................................ 4
Taxation Under Certain Retirement Plans........ 5
Withholding.................................... 9
Terms of Exemptive Relief in Connection With
Mortality and Expense Risk Charge............. 9
Variable Account Financial Statements.......... 10
APPENDIX A--Performance Information............ A-1
</TABLE>
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this Prospectus
should be considered primarily as bearing on the ability of Fortis Benefits to
meet its obligations under the Certificates. The Certificates are not entitled
to participate in earnings, dividends or surplus of Fortis Benefits.
24
<PAGE>
PROSPECTUS
MAY 1, 1996
FORTIS
SERIES FUND, INC.
FORTIS MASTERS
VARIABLE ANNUITY
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
UVW-REGISTERED TRADEMARK-
<TABLE>
<S> <C>
PAID
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
PERMIT NO. 3794
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company as of December 31, 1995 and 1994, and the related statements of income,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
In 1993, as discussed in Note 2 to the financial statements, the Company changed
its method of accounting for income taxes, postretirement benefits other than
pensions and certain investments in debt and equity securities.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 14, 1996
25
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investments--Note 4
Fixed maturities, at fair value (amortized cost 1995--$1,951,204; 1994--$1,749,347)... $ 2,075,624 $ 1,674,782
Equity securities, at fair value (cost 1995--$60,935; 1994--$59,010).................. 78,852 64,552
Mortgage loans on real estate, less allowance for possible losses (1995--$8,353;
1994--$7,429)........................................................................ 562,697 452,547
Policy loans.......................................................................... 53,863 49,221
Short-term investments................................................................ 153,499 117,562
Real estate and other investments..................................................... 11,918 13,441
------------ ------------
2,936,453 2,372,105
Cash.................................................................................... 1 10,888
Receivables:
Uncollected premiums.................................................................. 55,992 40,667
Reinsurance recoverable on unpaid and paid losses..................................... 11,812 15,181
Due from affiliates................................................................... 388 2,220
Other................................................................................. 14,581 12,593
------------ ------------
82,773 70,661
Accrued investment income............................................................... 41,209 38,584
Deferred policy acquisition costs--Note 5............................................... 237,509 232,198
Property and equipment at cost, less accumulated depreciation--Note 6................... 60,031 56,939
Deferred federal income taxes--Note 8................................................... -- 48,509
Other assets............................................................................ 3,551 1,120
Assets held in separate accounts--Note 9................................................ 1,781,485 1,212,910
------------ ------------
TOTAL ASSETS............................................................................ $ 5,143,012 $ 4,043,914
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
26
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
POLICY RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance............................................................ $ 407,706 $ 375,257
Interest sensitive and investment products............................................ 1,101,931 912,653
Accident and health................................................................... 832,925 798,293
------------ ------------
2,342,562 2,086,203
Unearned premiums....................................................................... 13,044 16,145
Other policy claims and benefits payable................................................ 196,403 169,864
Policyholder dividends payable.......................................................... 7,930 6,793
------------ ------------
2,559,939 2,279,005
Accrued expenses........................................................................ 68,441 45,905
Current income taxes payable............................................................ 5,375 4,352
Deferred federal income taxes--Note 8................................................... 9,538 --
Other liabilities....................................................................... 31,145 32,416
Liabilities related to separate accounts................................................ 1,757,476 1,208,039
------------ ------------
TOTAL POLICY RESERVES AND LIABILITIES..................................................... 4,431,914 3,569,717
SHAREHOLDER'S EQUITY--Notes 1, 10 and 12
Common stock, $5 par value, 1,000,000 shares authorized, issued and outstanding......... 5,000 5,000
Additional paid-in capital.............................................................. 408,000 358,000
Retained earnings....................................................................... 207,421 153,551
Unrealized gains (losses) on investments, net--Note 4................................... 88,131 (42,908)
Unrealized gains on assets held in separate accounts net of deferred taxes of $1,371 in
1995
and $298 in 1994....................................................................... 2,546 554
------------ ------------
TOTAL SHAREHOLDER'S EQUITY................................................................ 711,098 474,197
------------ ------------
TOTAL RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY..................................... $ 5,143,012 $ 4,043,914
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
27
<PAGE>
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Insurance operations
Traditional life insurance premiums......................................... $ 251,353 $ 207,824 $ 187,863
Interest sensitive and investment product policy charges.................... 46,076 37,823 28,778
Accident and health premiums................................................ 934,900 776,799 738,412
------------ ------------ ------------
1,232,329 1,022,446 955,053
Net investment income--Note 4................................................. 203,537 162,514 153,657
Realized gains (losses) on investments--Note 4................................ 55,080 (28,815) 73,623
Other income.................................................................. 33,085 35,958 27,100
------------ ------------ ------------
TOTAL REVENUES............................................................ 1,524,031 1,192,103 1,209,433
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance.................................................. 202,911 162,168 145,958
Interest sensitive and investment products.................................. 73,676 55,026 50,935
Accident and health......................................................... 769,588 620,367 598,146
------------ ------------ ------------
1,046,175 837,561 795,039
Policyholder dividends........................................................ 4,305 1,986 5,855
Amortization of deferred policy acquisition costs--Note 5..................... 41,291 34,566 36,503
Insurance commissions......................................................... 95,559 86,111 76,816
General and administrative expenses........................................... 254,940 197,427 185,986
------------ ------------ ------------
TOTAL BENEFITS AND EXPENSES............................................... 1,442,270 1,157,651 1,100,199
------------ ------------ ------------
Income before federal income taxes and cumulative effect of accounting
changes........................................................................ 81,761 34,452 109,234
Federal income taxes--Note 8.................................................... 27,891 11,595 31,090
------------ ------------ ------------
Income before cumulative effect of accounting changes........................... 53,870 22,857 78,144
Cumulative effect of change in accounting for income taxes--Note 2............ -- -- 4,814
Cumulative effect of change in accounting for postretirement benefits other
than pensions,
net of tax--Note 2........................................................... -- -- (1,251)
------------ ------------ ------------
NET INCOME................................................................ $ 53,870 $ 22,857 $ 81,707
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
28
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAINS ON
ADDITIONAL GAINS ASSETS HELD
COMMON PAID-IN RETAINED (LOSSES) ON IN SEPARATE
STOCK CAPITAL EARNINGS INVESTMENTS ACCOUNTS TOTAL
----------- ----------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993......................... $ 5,000 $ 345,000 $ 52,634 $ 4,263 $ 657 $ 407,554
Net income...................................... -- -- 81,707 -- -- 81,707
Dividends to shareholder........................ -- -- (4,000) -- -- (4,000)
Other........................................... -- -- 353 -- -- 353
Change in unrealized gains on investments,
net............................................ -- -- -- 2,099 -- 2,099
Change in unrealized gains on investments, net,
resulting from initial adoption of FASB
115--Note 1.................................... -- -- -- 43,782 -- 43,782
Change in unrealized gain on assets held in
separate account, net of deferred tax expense
of $238........................................ -- -- -- -- 413 413
----- ----------- ----------- ----------- ----- ---------
Balance December 31, 1993....................... 5,000 345,000 130,694 50,144 1,070 531,908
Net income...................................... -- -- 22,857 -- -- 22,857
Additional paid-in capital...................... -- 13,000 -- -- -- 13,000
Change in unrealized losses on investments,
net............................................ -- -- -- (93,052) -- (93,052)
Change in unrealized gain on assets held in
separate account, net of deferred tax benefit
of $277........................................ -- -- -- -- (516) (516)
----- ----------- ----------- ----------- ----- ---------
Balance December 31, 1994....................... 5,000 358,000 153,551 (42,908) 554 474,197
Net income...................................... -- -- 53,870 -- -- 53,870
Additional paid-in capital...................... -- 50,000 -- -- -- 50,000
Change in unrealized gains on investments,
net............................................ -- -- -- 131,039 -- 131,039
Change in unrealized gain on assets held in
separate account, net of deferred tax expense
of $1,073...................................... -- -- -- -- 1,992 1,992
----- ----------- ----------- ----------- ----- ---------
Balance December 31, 1995....................... $ 5,000 $ 408,000 $ 207,421 $ 88,131 $ 2,546 $ 711,098
----- ----------- ----------- ----------- ----- ---------
----- ----------- ----------- ----------- ----- ---------
</TABLE>
29
<PAGE>
STATEMENT OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................. $ 53,870 $ 22,857 $ 81,707
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of accounting changes................................... -- -- (3,563)
Increase in future policy benefit reserves for traditional, interest
sensitive and accident and health policies............................... 80,478 79,014 58,299
Increase (decrease) in other policy claims and benefits and policyholder
dividends payable........................................................ 27,676 10,075 (15,868)
Decrease in deferred federal income taxes................................. (13,584) (2,356) (9,776)
Increase (decrease) in income taxes payable............................... 1,023 3,283 (12,733)
Amortization of policy acquisition costs.................................. 41,291 34,566 36,503
Policy acquisition costs deferred......................................... (56,391) (54,349) (45,841)
Provision for mortgage loan losses........................................ 924 1,105 1,648
Provision for depreciation................................................ 15,654 12,267 9,399
Accrual of discount, net.................................................. (239) (914) 72
Change in receivables, accrued investment income, unearned premiums,
accrued expenses and other liabilities................................... 3,427 (36,650) 5,751
Net realized (gains) losses on investments................................ (55,080) 28,815 (73,623)
Other..................................................................... (2,431) (135) 164
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 96,618 97,578 32,139
INVESTING ACTIVITIES
Purchase of fixed maturity investments...................................... (2,151,133) (1,943,697) (2,337,842)
Sales or maturities of fixed maturity investments........................... 2,000,068 1,798,184 2,358,288
(Increase) decrease in short-term investments............................... (35,908) (44,266) 28,756
Purchase of other investments............................................... (240,264) (211,836) (201,601)
Sales or maturities of other investments.................................... 112,598 104,399 75,539
Purchase of property and equipment.......................................... (19,975) (16,164) (13,155)
Purchase of group insurance business........................................ -- (6,644) (5,521)
Other....................................................................... 1,229 500 49
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES................................... (333,385) (319,524) (95,487)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................................... 187,484 200,499 68,943
Surrenders and death benefits............................................. (60,522) (19,207) (37,262)
Interest credited to policyholders........................................ 48,918 31,867 30,024
Additional paid-in capital from shareholder................................. 50,000 13,000 --
Dividends paid to shareholder............................................... -- -- (4,000)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................... 225,880 226,159 57,705
------------- ------------- -------------
INCREASE (DECREASE) IN CASH............................................. (10,887) 4,213 (5,643)
Cash at beginning of year..................................................... 10,888 6,675 12,318
------------- ------------- -------------
CASH AT END OF YEAR..................................................... $ 1 $ 10,888 $ 6,675
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Fortis Benefits Insurance Company (the Company) is an
affiliate of the worldwide Fortis group of companies owned by Fortis AMEV of the
Netherlands and Fortis AG of Belgium. The Company is incorporated in Minnesota
and distributes its products in all states except New York. To date, the
majority of the Company's revenues have been derived from group employee
benefits products and the remainder from individual life and annuity products.
BASIS OF STATEMENT PRESENTATION: The financial statements are presented in
conformity with generally accepted accounting principles. Certain amounts
included in the 1993 and 1994 financial statements have been reclassified to
conform to the 1995 presentation.
RECOGNITION OF REVENUES, POLICY RESERVES AND LIABILITIES AND POLICY ACQUISITION
COSTS: The Company follows generally accepted accounting principles which differ
in certain respects from statutory accounting practices prescribed or permitted
by regulatory authorities. The more significant of these principles are:
Premiums for long-duration traditional life policies are recognized as
revenues when due over the premium-paying period. Liabilities for future
policy benefits and expenses are computed using the net level method and
include investment yield, mortality, withdrawal, and other assumptions based
on the Company's experience, modified as necessary to reflect anticipated
trends and to include provisions for possible unfavorable deviations.
Revenues for universal life and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy
benefit reserves are computed under the retrospective deposit method and
consist of policy account balances before applicable surrender charges and
certain deferred policy initiation fees that are being recognized in income
over the term of the policies. Policy benefits charged to expense during the
period include amounts paid in excess of policy account balances and
interest credited to policy account balances. Interest credit rates for
universal life and investment products ranged from 4% to 7.80% in 1995 and
1994.
Premiums for long-term disability, short-term traditional life, and accident
and health are recognized as revenues ratably over the contract period in
proportion to the risk insured. Liabilities for future disability income
policy benefits are based on the 1964 Commissioners Disability Table at 6
percent interest. Calculated reserves are modified based on the Company's
actual experience. Claims and benefits payable for reported and incurred but
not reported losses and related loss adjustment expenses are determined
using case-basis estimates and past experience. The methods of making such
estimates and establishing the related liabilities are continually reviewed
and updated. Any adjustments resulting therefrom are reflected in earnings
currently.
For interest sensitive and investment products, deferred policy acquisition
costs are amortized in relation to profits. For group life, accident and
health, disability, and dental insurance business acquired on October 1,
1991 (see Note 3), the Company recorded the present value of future profits
as deferred policy acquisition costs. These costs are amortized in
proportion to premium revenue over the estimated premium paying period of
the related policies and, if required, are expensed when such costs are
deemed not to be recoverable from future policy revenues, including the
related investment income.
For insurance products issued subsequent to December 31, 1984, the costs of
acquiring new business, which vary with and are directly related to the
production of new business, are deferred, to the extent recoverable from
future profits, and amortized against income. The period of amortization
varies depending upon the product. For traditional life products, the policy
acquisition costs are deferred and amortized over the premium paying period
of the contracts. For interest sensitive and investment products, the policy
acquisition costs are deferred and amortized in relation to the present
value of estimated future gross profits.
INVESTMENTS: The Company's investment strategy is developed based on many
factors including insurance liability matching, rate of return, maturity, credit
risk, tax considerations and regulatory requirements.
Prior to December 31, 1993, the Company classified fixed maturity investments as
available-for-sale recorded at the lower of amortized cost or market, computed
on a portfolio basis. Equity securities were carried at fair value. At December
31, 1993, all fixed maturity securities were classified as available-for-sale
and carried at fair value. The effect of adopting Statement 115 at December 31,
1993 was to increase the carrying amount of fixed maturities by $76,309,000,
policyholder dividends payable by $2,684,000, deferred income taxes by
$23,575,000 and shareholder's equity by $43,782,000 and to reduce the carrying
amount of deferred policy acquisition costs by $6,268,000. Beginning in 1994,
the classification of fixed maturity investments between available-for-sale or
held to maturity is made at the time of each purchase and, prospectively, that
classification is reevaluated as of each balance sheet date.
Changes in market values of available-for-sale securities, after deferred income
taxes and after adjustment for the amortization of deferred policy acquisition
costs, and participating policyholders' share of earnings are reported as
unrealized gains (losses) on investments directly in shareholder's equity and,
accordingly, have no effect on net income. The offsets to the unrealized
appreciation or depreciation represent valuation adjustments relating to amounts
of additional deferred policy acquisition costs or amortization of deferred
policy acquisition costs and the additional liabilities established for future
policyholder benefits and participating policyholders' share of the Company's
earnings that would have been required as a charge or credit to operations had
such unrealized amounts been realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at unpaid balances, adjusted
for amortization of premium or discount, less allowance for possible losses. The
change in the allowance for possible losses is recorded with realized gains and
losses on investments. Policy loans are reported at unpaid balance.
31
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost less
accumulated depreciation. The Company provides for depreciation principally on
the straight line method over the estimated useful lives of the related
property.
INCOME TAXES: Income taxes have been provided using the liability method in
accordance with Financial Accounting Standards Board ("FASB") Statement 109,
ACCOUNTING FOR INCOME TAXES. Deferred tax assets and liabilities are determined
based on the differences between the financial reporting and the tax bases and
are measured using the enacted tax rates.
SEPARATE ACCOUNTS: Assets and liabilities associated with separate accounts
relate to premium and annuity considerations for variable life and annuity
products for which the contract holder, rather than the Company, bears the
investment risk. Separate account assets are reported at fair value.
GUARANTY FUND ASSESSMENTS: The economy and other factors have caused an increase
in the number of insurance companies that are under regulatory supervision. This
circumstance may result in an increase in assessments by state guaranty funds,
or voluntary payments by solvent insurance companies, to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments can
be partially recovered through a reduction in future premium taxes in some
states. The Company is not able to reasonably estimate the impact of future
assessments on its financial position but does not believe that the impact will
be material.
USE OF ESTIMATES: The preparation of financial statements in conformity of
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CHANGES IN ACCOUNTING PRINCIPLES
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: Effective
January 1, 1993, the Company adopted FASB Statement 106, EMPLOYERS' ACCOUNTING
FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company elected to
immediately recognize the cumulative effect of this change in accounting for
postretirement benefits of $1,895,000 ($1,251,000 net of deferred income tax
benefit), which represents the accumulated postretirement benefit obligation
existing at January 1, 1993. The impact of Statement 106 on operating results
for 1993 was not material.
ACCOUNTING FOR INCOME TAXES: Effective January 1, 1993, the Company adopted FASB
Statement 109, ACCOUNTING FOR INCOME TAXES. Statement 109 provides for a balance
sheet approach in determining deferred income tax assets and liabilities. The
cumulative effect of adopting Statement 109 increased the Company's deferred tax
asset and net income by approximately $4,814,000 in 1993.
ACCOUNTING AND REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION
CONTRACTS: In 1993, the Company adopted FASB Statement 113, ACCOUNTING AND
REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS. Under
Statement 113, amounts paid or deemed to have been paid for reinsurance
contracts are recorded as reinsurance recoverables.
ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES: The Company adopted FASB
Statement 115, ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES, as of December
31, 1993. Under Statement 115, all fixed maturities are classified as
available-for-sale and carried at fair value, while equity securities continue
to be carried at fair value. Adoption of Statement 115 had no effect on net
income in 1993.
3. ACQUIRED BUSINESS
In October, 1991, the Company purchased certain assets and assumed certain
liabilities from The Mutual Benefit Life Insurance Company in Rehabilitation
(MBL). The seller transferred to the Company, the assets and liabilities
relating to the group life, accident and health, disability and dental insurance
business of MBL. The acquisition was accounted for as a purchase. The Company
purchased this business for $318,000,000. Per contractual agreement, additional
payments were paid to MBL based upon the persistency of the long term disability
portion of the business. Under terms of this agreement, the Company paid
$6,644,000, $5,521,000 and $8,685,000 in 1994, 1993, and 1992, respectively.
This additional purchase price was accounted for as deferred policy acquisition
costs. No additional payments will be made.
32
<PAGE>
4. INVESTMENTS
AVAILABLE FOR SALE SECURITIES: The following is a summary of the available for
sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1995:
Fixed Income Securities:
Governments.................................... $ 453,406 $ 36,938 $ 142 $ 490,202
Public utilities............................... 55,793 4,617 -- 60,410
Industrial & miscellaneous..................... 1,420,374 82,705 1,282 1,501,797
Other.......................................... 21,631 1,586 2 23,215
------------ ------------ ------ ------------
Total........................................ 1,951,204 125,846 1,426 2,075,624
Equity Securities................................ 60,935 20,321 2,404 78,852
------------ ------------ ------ ------------
Total........................................ $ 2,012,139 $ 146,167 $ 3,830 $ 2,154,476
------------ ------------ ------ ------------
------------ ------------ ------ ------------
December 31, 1994:
Fixed Income Securities:
Governments.................................... $ 829,607 $ 1,129 $ 40,642 $ 790,094
Public utilities............................... 60,885 1,132 1,389 60,628
Industrial & miscellaneous..................... 847,018 3,184 38,505 811,697
Other.......................................... 11,837 764 238 12,363
------------ ------------ ------ ------------
Total........................................ 1,749,347 6,209 80,774 1,674,782
Equity Securities................................ 59,010 9,896 4,354 64,552
------------ ------------ ------ ------------
Total........................................ $ 1,808,357 $ 16,105 $ 85,128 $ 1,739,334
------------ ------------ ------ ------------
------------ ------------ ------ ------------
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1995, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Due in one year or less.................................................. $ 80,474 $ 80,960
Due after one year through five years.................................... 472,741 487,764
Due after five years through ten years................................... 687,374 727,723
Due after ten years...................................................... 710,615 779,177
------------ ------------
Total................................................................ $ 1,951,204 $ 2,075,624
------------ ------------
------------ ------------
</TABLE>
MORTGAGE LOANS: The Company has issued commercial mortgage loans on properties
located throughout the country. Approximately 35% of outstanding principal is
concentrated in the states of California, Florida and New York at December 31,
1995 as compared to concentrated interests in California, Florida, and Texas of
34% at December 31, 1994. Loan commitments outstanding totaled $10,030,000 at
December 31, 1995.
In May 1993, FASB issued Statement 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN, which becomes effective for fiscal years beginning after December 15,
1994, and which the Company adopted in 1995. Statement 114 requires that
impaired loans are to be valued at the present value of expected future cash
flows discounted at the loan's effective interest rate, or, as a practical
expedient, at the loan's observable market price, or the fair market value of
the collateral if the loan is collateral dependent. The impact of adoption was
not material to the Company's financial position or operating results.
INVESTMENTS ON DEPOSIT: The Company had fixed maturities and mortgage loans on
real estate carried at $2,385,000 and $8,132,000, respectively, at December 31,
1995, and $2,635,000 and $8,132,000 respectively, at December 31, 1994 on
deposit with various governmental authorities as required by law.
NET UNREALIZED GAINS (LOSSES): The adjusted net unrealized gains (losses)
recorded in shareholder's equity were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Change in unrealized gains (losses) before adjustment for the following
items:.................................................................... $ 214,452 $ (155,923) $ 80,288
Capitalization (amortization) of deferred policy acquisition costs....... (9,789) 9,288 (6,268)
Participating policyholders' share of earnings........................... -- 2,684 (2,684)
Deferred income taxes.................................................... (71,632) 50,383 (25,042)
------------ ------------ ------------
Change in net unrealized gains (losses).................................... 133,031 (93,568) 46,294
Net unrealized gains, beginning of the year................................ (42,354) 51,214 4,920
------------ ------------ ------------
Net unrealized gains (losses), end of year................................. $ 90,677 $ (42,354) $ 51,214
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
33
<PAGE>
4. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND REALIZED GAINS (LOSSES) ON INVESTMENTS: Major
categories of net investment income and realized gains (losses) on investments
for each year were as follows (in thousands):
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
NET INVESTMENT INCOME ON INVESTMENTS
------------------------------- -------------------------------
1995 1994 1993 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities........................................... $ 139,062 $ 119,668 $ 120,844 $ 50,393 $ (27,854) $ 70,626
Equity securities.......................................... 2,026 1,937 1,490 2,830 1,352 3,955
Mortgage loans on real estate.............................. 49,227 36,816 28,370 (242) (2,992) (1,805)
Policy loans............................................... 2,797 2,731 3,004 -- -- --
Short-term investments..................................... 11,863 4,671 4,282 (3) (60) 1
Real estate & other investments............................ 4,750 2,138 1,171 2,102 739 846
--------- --------- --------- --------- --------- ---------
Tota1.................................................. 209,725 167,961 159,161 $ 55,080 $ (28,815) $ 73,623
--------- --------- ---------
--------- --------- ---------
Expenses................................................... (6,188) (5,447) (5,504)
--------- --------- ---------
$ 203,537 $ 162,514 $ 153,657
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $2,000,068,000,
$1,798,185,000, and $2,335,230,000 in 1995, 1994 and 1993, respectively. Gross
gains of $61,070,000, $16,618,000, and $75,133,000 and gross losses of
$10,677,000, $44,472,000, and $4,507,000 were realized on the sales in 1995,
1994, and 1993, respectively.
5. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows
(in thousands):
<TABLE>
<CAPTION>
INTEREST
SENSITIVE AND
TRADITIONAL INVESTMENT ACCIDENT AND
LIFE PRODUCTS HEALTH TOTAL
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1994................................ $ 61,474 $ 87,946 $ 47,063 $ 196,483
Acquisition costs deferred:
Acquired business.................................... -- -- 6,644 6,644
Other business....................................... -- 54,349 -- 54,349
Acquisition costs amortized............................ (11,564) (10,274) (12,728) (34,566)
Allowance for additional amortization from unrealized
gains on available-for-sale securities................ -- 9,288 -- 9,288
----------- ------------- ------------- ---------
Balance December 31, 1994.............................. $ 49,910 $ 141,309 $ 40,979 $ 232,198
Acquisition costs deferred:
Other business....................................... -- 56,391 -- 56,391
Acquisition costs amortized............................ (11,378) (17,071) (12,842) (41,291)
Additional amortization of deferred acquisition costs
from unrealized losses on available-for-sale
securities............................................ -- (9,789) -- (9,789)
----------- ------------- ------------- ---------
Balance December 31, 1995.............................. $ 38,532 $ 170,840 $ 28,137 $ 237,509
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1995 is
$46,750,000 of present value of future profits (PVP) resulting from acquisitions
accounted for as a purchase. The estimated amount of PVP to be amortized during
each of the next three years is as follows: 1996-- $19,210,000;
1997--$17,262,000; 1998--$10,278,000.
During 1995, 1994, and 1993, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized capital (losses) gains resulted in (reduced) additional amortization of
acquisition costs deferred of $4,825,000, $(935,000), and $5,400,000,
respectively. In addition, the Company (reduced) recorded policyholder dividends
payable of $1,095,000 in 1995, $(761,000) in 1994 and $2,800,000 in 1993.
34
<PAGE>
6. PROPERTY AND EQUIPMENT
A summary of property and equipment for each year follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Land................................................................................. $ 1,900 $ 1,900
Building and improvements............................................................ 23,319 23,084
Furniture and equipment.............................................................. 85,592 68,017
--------- ---------
110,811 93,001
Less accumulated depreciation........................................................ (50,780) (36,062)
--------- ---------
Net property and equipment........................................................... $ 60,031 $ 56,939
--------- ---------
--------- ---------
</TABLE>
7. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity for the liability for unpaid accident and health claims and claims
adjustment expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables.................... $ 838,810 $ 806,538 $ 776,194
Add: Incurred losses related to:
Current year.............................................................. 827,261 656,052 612,621
Prior years............................................................... (28,520) (58,218) (41,619)
--------- --------- ---------
Total incurred losses................................................... 798,741 597,834 571,002
Deduct: Paid losses related to:
Current year.............................................................. 492,460 377,595 353,124
Prior years............................................................... 216,259 187,967 187,534
--------- --------- ---------
Total paid losses....................................................... 708,719 565,562 540,658
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables.................. $ 928,832 $ 838,810 $ 806,538
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1995, the accident/health business experienced overall unfavorable claims
experience. The unfavorable experience was the result of medical cost trends and
the negative impact of medical premium rate restrictions in certain states. In
1994 and 1993, the accident/health business experienced overall favorable
development on claims reserves established as of the previous year end. The
favorable development was a result of lower medical costs due to less
uncertainty in the health business, a reduction of loss reserves which
considered historically high inflation in medical costs and, in 1994, a
refinement in the claims reserve estimates.
8. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis, Inc. Income tax
expense or credits are allocated among the affiliated subsidiaries by applying
corporate income tax rates to taxable income or loss determined on a separate
return basis according to a Tax Allocation Agreement.
The cumulative effect of adopting Statement 109 as of January 1, 1993 was to
increase net income for 1993 by $4,814,000. An increase in the tax rate from 34%
to 35% was effective in the third quarter of 1993 and resulted in a $305,000
increase in net income from the recalculation of the deferred liability account.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
35
<PAGE>
8. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves........................................................... $ 54,346 $ 42,715
Separate account assets/liabilities................................ 34,386 27,663
Unrealized losses.................................................. -- 22,806
Accrued liabilities................................................ 13,781 14,565
Claims and benefits payable........................................ 2,626 1,976
Other.............................................................. 123 1,393
--------- ---------
Total deferred tax assets........................................ 105,262 111,118
Deferred tax liabilities:
Unrealized gains................................................... 48,826 --
Deferred policy acquisition costs.................................. 60,930 55,329
Investments........................................................ -- 1,194
Fixed assets....................................................... 5,044 6,086
--------- ---------
Total deferred tax liabilities................................... 114,800 62,609
--------- ---------
Net deferred tax asset (liability)............................... $ (9,538) $ 48,509
--------- ---------
--------- ---------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense before cumulative effect of accounting changes is
shown as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current....................................................... $ 39,660 $ 15,046 $ 35,747
Deferred...................................................... (11,769) (3,451) (4,657)
--------- --------- ---------
$ 27,891 $ 11,595 $ 31,090
--------- --------- ---------
--------- --------- ---------
</TABLE>
Tax payments were made of $47,711,000, $18,080,000 and $53,600,000 in 1995,
1994, and 1993, respectively. Tax refunds were received of $7,258,000 and
$7,729,000 in 1995 and 1994, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory income tax rate.......................................... 35.0% 35.0% 35.0%
Tax audit provision................................................ 0.0% 0.8% (4.6)%
Other, net......................................................... (0.9)% (2.1)% (1.9)%
--- --- ---
34.1% 33.7% 28.5%
--- --- ---
--- --- ---
</TABLE>
9. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life product for which the
contract holder, rather than the Company, bears the investment
risk............................................................. $ 1,757,476 $ 1,208,038
Assets of the separate accounts owned by the Company, at fair
value............................................................ 24,009 4,872
------------ ------------
$ 1,781,485 $ 1,212,910
------------ ------------
------------ ------------
</TABLE>
36
<PAGE>
10. STATUTORY ACCOUNTING PRACTICES
Reconciliations of net income and shareholder's equity on the basis of
statutory accounting to the related amounts presented in the accompanying
statements were as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
NET INCOME
------------------------------- --------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices.......................... $ 30,576 $ 49,759 $ 46,605 $ 377,040 $ 304,231
Deferred policy acquisition costs................................ 15,100 19,783 9,338 237,509 232,198
Investment valuation differences................................. 330 370 520 114,413 (85,944)
Deferred and uncollected premiums................................ 303 (14) 1,655 (7,372) (8,393)
Unearned premiums................................................ 1,829 1,126 7,035 (11,179) (13,008)
Loading and equity in unearned premiums.......................... (56) 316 (179) 94 85
Property and equipment........................................... (178) (204) (63) 27,172 22,027
Policy reserves.................................................. (31,011) (26,655) (38,558) (103,174) (72,192)
Current income taxes payable..................................... (1,294) -- 4,656 (7,895) (4,786)
Deferred income taxes............................................ 11,769 2,356 9,776 (9,538) 48,509
Realized gains (losses) on investments........................... 1,938 (1,052) 3,651 -- --
Realized gains (losses) transferred to the Interest Maintenance
Reserve (IMR), net of tax....................................... 31,711 (18,456) 40,459 -- --
Amortization of IMR, net of tax.................................. (5,261) (5,479) (3,777) -- --
Interest maintenance reserve..................................... -- -- -- 53,814 27,364
Asset valuation reserve.......................................... -- -- -- 48,507 32,011
Cumulative effect of accounting changes.......................... -- -- 3,563 -- --
Other, net....................................................... (1,886) 1,007 (2,974) (8,293) (7,905)
--------- --------- --------- --------- ---------
$ 53,870 $ 22,857 $ 81,707 $ 711,098 $ 474,197
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11. REINSURANCE
The maximum amount that the Company retains on any one life is $750,000 of
life insurance including accidental death. Amounts in excess of $750,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Life Insurance................................................ $ 4,661 $ 5,571 $ 4,366
Accident & Health Insurance................................... 3,410 36,782 37,088
--------- --------- ---------
$ 8,071 $ 42,353 $ 41,454
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Life Insurance................................................ $ 2,489 $ 1,650 $ 6,963
Accident & Health Insurance................................... 8,807 19,913 15,448
--------- --------- ---------
$ 11,296 $ 21,563 $ 22,411
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreements. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
12. STATUTORY INFORMATION
Dividend distributions to parent are restricted as to amount by state
regulatory requirements. The Company had $37,204,000 free from such restrictions
at December 31, 1995. Distributions in excess of this amount would require
regulatory approval.
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by Minnesota Insurance regulatory authorities.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC is currently in the
process of codifying statutory accounting practices. This project, which is
expected to be completed in 1996, may result in changes to the accounting
practices that insurance enterprises use to prepare their statutory-basis
financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. All of
the Company's insurance subsidiaries exceed minimum RBC requirements.
37
<PAGE>
13. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis, Inc. These services
include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment and other administrative functions. The
fees paid to Fortis, Inc. for these services for the years ended December 31,
1995, 1994, and 1993, were $10,074,000, $8,944,000, and $8,595,000 respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $59,308,000, $57,307,000, and $27,931,000, in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1995, 1994, and 1993,
respectively.
14. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS: Investments are reported in the accompanying
balance sheets on the following basis:
The fair values for fixed maturity securities and equity securities are
based on quoted market prices, where available. For fixed maturity securities
not actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. The fair values
for the Company's policy reserves under investment products are determined using
cash surrender value.
The fair values under all insurance contracts are taken into consideration
in the Company's overall management of interest rate risk, such that the
Company's exposure to changing interest rates is minimized through the matching
of investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1995 1994
--------------------------- ---------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities............................... $ 2,075,624 $ 2,075,624 $ 1,674,782 $ 1,674,782
Equity securities.............................. 78,852 78,852 64,552 64,552
Mortgage loans on real estate.................... 562,697 605,501 452,547 434,503
Policy loans..................................... 53,863 53,863 49,221 49,221
Short-term investments........................... 153,499 153,499 117,562 117,562
Cash............................................. 1 1 10,888 10,888
Assets held in separate accounts................. 1,781,485 1,781,485 1,212,910 1,212,910
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)......................... 865,623 834,621 692,196 657,454
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
16. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company participates in the Fortis, Inc. noncontributory defined benefit
pension plan covering substantially all of its employees. Benefits are based on
years of service and the employee's compensation during such years of service.
Fortis, Inc. is not able to segregate Company specific benefit obligations or
plan assets. On an aggregate basis, the fair value of plan assets exceeded the
accumulated benefit obligations as of December 31, 1995.
The Company has a profit sharing plan covering substantially all employees which
provides benefits payable to participants on retirement or disability and to
beneficiaries of participants in event of the participant's death. Amounts
contributed to the plan and expensed by the Company were $3,765,000, $3,536,000
and $3,399,000 in 1995, 1994, and 1993, respectively.
38
<PAGE>
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<PAGE>
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
<TABLE>
<C> <C> <C> <C> <S>
1 + I n/12
---------- - 1
( 1 + J + .005 )
</TABLE>
Sample Calculation 1: Positive Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 + .08 60/12
$10,000 x ------------ - 1] = $234.73
[( 1 + .07 + .005 )
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,234.73
Sample Calculation 2: Negative Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 + .08 60/12
$10,000 x ------------ - 1] = - $666.42
[( 1 + .09 + .005 )
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,333.58
Sample Calculation 3: Negative Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 + .08 60/12
$10,000 x -------------- - 1] = - $114.94
[( 1 + .0775 + .005 )
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,885.06
- ------------------------
* Assumed for illustrative purposes only.
A-1
<PAGE>
APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS
DATE OF DEATH IS THE 3RD CERTIFICATE ANNIVERSARY
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
--------- ---------
<S> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death........... $ 20,000 $ 20,000
b. Certificate Value on Date of Death.......................... $ 17,000 $ 25,000
Death Benefit is larger of a, and b.............................. $ 20,000 $ 25,000
</TABLE>
DATE OF DEATH IS THE 8TH CERTIFICATE ANNIVERSARY
<TABLE>
<CAPTION>
EXAMPLE 3 EXAMPLE 4 EXAMPLE 5
--------- --------- ---------
<S> <C> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death........... $ 20,000 $ 20,000 $ 20,000
b. Certificate Value on 7th Certificate Anniversary............ $ 15,000 $ 30,000 $ 30,000
c. Certificate Value on Date of Death.......................... $ 17,000 $ 25,000 $ 35,000
Death Benefit is larger of a, b, and c........................... $ 20,000 $ 30,000 $ 35,000
</TABLE>
DATE OF DEATH IS THE 15TH CERTIFICATE ANNIVERSARY
<TABLE>
<CAPTION>
EXAMPLE 6 EXAMPLE 7 EXAMPLE 8
--------- --------- ---------
<S> <C> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death........... $ 20,000 $ 20,000 $ 20,000
b. Certificate Value on 14th Certificate Anniversary........... $ 15,000 $ 40,000 $ 40,000
c. Certificate Value on Date of Death.......................... $ 17,000 $ 30,000 $ 50,000
Death Benefit is larger of a, b, and c........................... $ 20,000 $ 40,000 $ 50,000
</TABLE>
The numbers do not include any market value adjustments which might be
applicable to the death benefit amount.
B-1
<PAGE>
APPENDIX C--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total Series Fund
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
<TABLE>
<C> <S> <C> <C>
--------------------------------------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.35%
--------------------------------------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses 0.67%
--------------------------------------------------------------------------------------------------------------
= Total Expense Rate 2.02%
--------------------------------------------------------------------------------------------------------------
</TABLE>
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X 0.0202 = $20.20
Year 2 Beginning Policy Value = $1029.80
Year 2 Expense = 1029.80 X 0.0202 = $20.80
Year 3 Beginning Policy Value = $1060.49
Year 3 Expense = 1060.49 X 0.0202 = $21.42
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to 20.20 + 20.80 + 21.42 = $62.42
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) = Surrender Charge
0.05 X ( 1000.00 - 100.00 ) = 45.00
</TABLE>
So the total expense if surrendered is 62.42 + 45.00 = $107.42
C-1
<PAGE>
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<PAGE>
CERTIFICATES UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
FORTIS MASTERS VARIABLE ANNUITY
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for certificates under flexible premium deferred combination variable
and fixed annuity contracts ("Certificates"), dated May 1, 1996. A copy of the
Prospectus may be obtained without charge from Fortis Investors, Inc. 1-800-800-
2638, mailing address: P.O. Box 64272, St. Paul, MN 55164. You have the option
of receiving benefits under a Certificate through Fortis Benefits' Variable
Account D or through Fortis Benefits' Fixed Account.
TABLE OF CONTENTS
Fortis Benefits and the Variable Account . . . . . . . . . . . . . . . . .2
Calculation of Annuity Payments. . . . . . . . . . . . . . . . . . . . . .2
Postponement of Payments . . . . . . . . . . . . . . . . . . . . . . . . .3
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
- Safekeeping of Variable Account Assets . . . . . . . . . . . . . . . .4
- Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
- Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . .4
Limitation on Allocations. . . . . . . . . . . . . . . . . . . . . . . . .4
Change of Investment Adviser or Investment Policy. . . . . . . . . . . . .4
Taxation Under Certain Retirement Plans. . . . . . . . . . . . . . . . . .4
Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Terms of Exemptive Relief in Connection With Mortality
and Expense Risk Charge. . . . . . . . . . . . . . . . . . . . . . . .9
Variable Account Financial Statements. . . . . . . . . . . . . . . . . . .9
Appendix A -- Performance Information. . . . . . . . . . . . . . . . . .A-1
In order to supplement the description in the Prospectus, the following provides
additional information about the Certificates and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have
the same meanings as are defined in the Prospectus under the heading "Special
Terms Used in This Prospectus."
1
<PAGE>
FORTIS BENEFITS AND THE VARIABLE ACCOUNT
Fortis Benefits Insurance Company, the issuer of the Certificates, is a
Minnesota corporation qualified to sell life insurance and annuity contracts in
the District of Columbia and in all states except New York. Fortis Benefits is
a wholly-owned subsidiary of Time Insurance Company, a stock company organized
under the laws of Wisconsin, which itself is a wholly-owned subsidiary of
Fortis, Inc. Fortis, Inc. is a corporation based in New York, which manages
the United States operations of Fortis AMEV and Fortis AG.
Fortis AMEV has been in business since 1847 and is a publicly-traded, multi-
national insurance, real estate, and financial services group headquartered in
The Netherlands. It is one of the largest holding companies in Europe, with
subsidiary companies in twelve countries on four continents. Fortis AMEV is the
third largest insurance company in the Netherlands.
Fortis AG is a multi-national insurance, real estate and financial services firm
that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis AG is one of the largest life insurance companies in Belgium.
Fortis AMEV and Fortis AG have combined assets of approximately $140 billion.
The assets allocated to the Variable Account are the exclusive property of
Fortis Benefits. Registration of the Variable Account under the Investment
Company Act of 1940 does not involve supervision of the management or investment
practices or policies of the Variable Account or of Fortis Benefits by the
Securities and Exchange Commission. Fortis Benefits may accumulate in the
Variable Account proceeds from charges under the Contracts and other amounts in
excess of the Variable Account assets representing reserves and liabilities
under Certificates and other variable annuity contracts issued by Fortis
Benefits. Fortis Benefits may from time to time transfer to its General Account
any of such excess amounts. Under certain remote circumstances the assets of
one Subaccount may not be insulated from liability associated with another
Subaccount.
Best's Insurance Reports has assigned Fortis Benefits a rating of A (Excellent)
for financial position and operating performance. Fortis Benefits has a rating
of AA from Standard & Poor's. As defined by Standard & Poor's, insurers rated
AA offer "excellent financial security." These ratings represent such rating
agencies' independent opinion of Fortis Benefits' financial strength and
ability to meet policy holder obligations, but have no relevance to the
performance and quality of the assets in Subaccounts of the Variable Account.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by Fortis Benefits. Monthly fixed annuity payments will start as of
the end of the Valuation Period that contains the Annuity Commencement Date. At
that time, the Certificate Value , after any Market Value Adjustment, is
computed and that portion of the Certificate Value which will be applied to the
Fixed Annuity Option selected is determined. The amount of the first monthly
payment under the Fixed Annuity Option selected will be at least as large as
would result from using the annuity tables contained in the Certificate to apply
such amount of Certificate Value to the annuity form selected. The dollar
amounts of any fixed annuity payments after the first are specified during the
entire period of annuity payments according to the provisions of the annuity
form selected.
VARIABLE ANNUITY OPTION
ANNUITY UNITS. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value to be applied to a Variable Annuity Option is also
converted, after any
2
<PAGE>
Market Value Adjustment, to Annuity Units in the Subaccounts selected based on
the then-current Annuity Unit value. The initial number of Annuity Units in
each Subaccount is determined by dividing the amount of the initial monthly
variable annuity payment (see "Variable Annuity Option -- Variable Annuity
Payments," below) allocable to that Subaccount by the value of one Annuity Unit
in that Subaccount as of the time of the
conversion. The number of Annuity Units for each Subaccount will remain
constant, as long as an annuity remains in force and the allocation among the
Subaccounts has not changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus under "Certificate Value") for the
Valuation Period ending on that Valuation Date, with an offset for the 4%
assumed interest rate used in the annuity tables of the Certificate.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Certificate for each
$1,000 of Certificate Value applied to the Variable Annuity Option selected as
of the end of such Valuation Period. The first variable annuity payment is, in
effect, allocated among the Subaccounts in the same proportion as the
Certificate Value is allocated among the Subaccounts upon commencement of
annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Certificate's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Certificate.
This is because, statistically, females tend to have longer life expectancies
than males. However, there will be no differences between male and female
Annuitants in any jurisdiction, including Montana, where such differences are
not permitted. We will also make available Certificates with no such
differences in connection with certain employer-sponsored benefit plans.
Employers should be aware that, under most such plans, Certificates that make
distinctions based on gender are prohibited by law.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by Fortis Benefits at its Home Office.
However, Fortis Benefits may defer the determination, application or payment of
any death benefit, transfer, partial or total surrender or annuity payment, to
the extent dependent on Accumulation or Annuity Unit Values, for any period
during which the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, for any period during
which any emergency exists as a result of which it is not reasonably practicable
for Fortis Benefits to determine the investment experience for the Certificate,
or for such other periods as the Securities and Exchange Commission may by order
permit for the protection of investors.
3
<PAGE>
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Fortis Benefits. The
assets of the Variable Account are kept segregated and held separate and apart
from Fortis Benefits' other assets. Fortis Advisers, Inc., an affiliate of
Fortis Benefits, maintains records of all purchases and redemptions of shares of
Fortis Series Fund, Inc. held by each of the Subaccounts of the Variable
Account.
EXPERTS
The financial statements of Fortis Benefits Insurance Company appearing in the
Prospectus and those of Fortis Benefits Insurance Company Variable Account D,
appearing in this Statement of Additional Information, have been audited by
Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis, Minnesota 55402,
independent auditors, as set forth in their reports thereon also appearing in
the Prospectus or this Statement of Additional Information, respectively, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Certificates, is a Minnesota corporation and a member of the Securities
Investors Protection Corporation. The offering of the Certificates is
continuous, and Fortis Investors does not anticipate discontinuing the offering
of the Certificates, although it reserves the right to do so. Certificates
generally will be issued for Annuitants from ages zero to ninety in all states.
LIMITATIONS ON ALLOCATIONS
Under the Certificate, Fortis Benefits reserves the right to control the amount
of any assets in any investment alternative. Pursuant to this authority, Fortis
Benefits has established the following administrative procedures for the
protection of the interests of all investors participating in Fortis Series'
Portfolios: a Participant may not invest, allocate, transfer or exchange
Certificate Value into any Subaccount if the value allocated to the Subaccount
under the Certificate (and under any other insurance or annuity contracts
directly or indirectly controlled by the same person, jointly or individually)
would immediately thereafter equal 25% or more of the related Fortis Series
Portfolio's net assets. Fortis Benefits reserves the right to modify these
procedures at any time.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, and subject to Fortis Advisers,
Inc.'s right to terminate its investment advisory arrangements with Fortis
Series, neither the investment adviser nor any investment policy may be changed
without the consent of Fortis Benefits. No investment policy will be changed
unless a statement of change is filed with and approved by the Commerce
Commissioner of the State of Minnesota. If required, approval of or change of
any investment objective will be filed with the Insurance Department of each
state where Certificates have been delivered. The Participant (or, after
annuity payments start, the payee) will be notified of any material investment
policy change which has been approved. You will be notified of an investment
policy change prior to its implementation by the Variable Account if your
comment or vote is required for such change.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Certificates for
specific types of retirement plans is set forth below. You should also refer to
"Federal Tax Matters" in the Prospectus. The tax information
4
<PAGE>
provided is not comprehensive, and you should consult a qualified tax adviser
before taking any action in connection with a retirement plan.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS
OR PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Certificates for their employees are excludible from
the gross income of employees to the extent that such aggregate purchase
payments do not exceed certain limitations prescribed by the Code. This is the
case whether the purchase payments are a result of voluntary salary reduction
amounts or employer contributions. Salary reduction payments are, however,
subject to FICA (social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be
limited to the lesser of the amount of the hardship or the amount of salary
reduction contributions, exclusive of earnings thereon.)
REQUIRED DISTRIBUTIONS. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Certificate has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Participant or
Payee in the case of a Non-Qualified Certificate, as described in the
Prospectus. Certain of these and other provisions are incorporated in a special
endorsement attached to Certificates that are intended to qualify under Section
403(b), and reference should be made to that endorsement for its complete terms.
TAX-FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free transfer
of one Section 403(b) annuity for another Section 403(b) annuity, and the IRS
has ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-
free transfers under certain circumstances. In addition, Section 403(b)(8) of
the code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions.
Salary reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an after-
tax basis.
5
<PAGE>
TAXATION OF DISTRIBUTIONS. Distributions from Certificates purchased under
these qualified plans are taxable as ordinary income, except to the extent
allocable to an employee's after-tax contributions, as described under "Federal
Tax Matters -- Qualified Plans," in the Prospectus. However, if an employee or
other payee receives a "lump sum" distribution, as defined in the Code, from an
exempt employees' trust, the taxable portion of the distribution may be subject
to special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special 5-
year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Certificate purchased under a qualified plan
are subject to the same 10% penalty tax (and the same exceptions) as described
above with respect to Section 403(b) annuities.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
TAX-FREE ROLLOVERS. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Certificates. Deductible contributions for any year may be made
up to the lesser of $2,000 or 100% of compensation for individuals who (1) are
not (and whose spouses are not) active participants in another retirement plan,
(2) are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. Such individuals may
also establish an IRA for a spouse who makes no contribution to an IRA for the
tax year. The annual purchase payments for both spouses' Certificates cannot
exceed the lesser of $2,250 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
Individuals who are active participants in other retirement plans and whose
adjusted gross income (with certain special adjustment) exceed the cut-off point
($25,000 for unmarried, $40,000 for married persons filing jointly, and $0 for
married persons filing a separate return) by less than $10,000 are entitled to
make deductible IRA contributions in proportionately reduced amounts. For
example, a married individual who is an active participant in another retirement
plan and files a separate tax return is entitled to a partial IRA deduction if
the individual's adjusted gross income is less than $10,000 and no IRA deduction
if his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($2,250 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter.
TAXATION OF DISTRIBUTIONS. Distributions from IRA Certificates are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Certificate prior to age 59 1/2 are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
exempted from this penalty tax including distributions following the owner's
death, disability or separation from service if the distribution is in the form
of an annuity for the life (or life expectancy) of the owner (or the owner and
beneficiary).
6
<PAGE>
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuities.
Certain of these and other provisions are incorporated in a special endorsement
attached to IRA Certificates, and reference should be made to that endorsement
for its complete terms.
TAX-FREE ROLLOVERS. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Certificate if certain
conditions are met, and if the rollover of assets is completed within 60 days
after the distribution from the qualified plan is received. In addition, not
more frequently than once every twelve months, amounts may be rolled over tax-
free from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to
direct transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
PURCHASE PAYMENTS. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $30,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to the SEP on their behalf on a salary reduction basis.
These salary reduction contributions may not exceed $9,500 in 1996, which is
indexed for inflation. Employees of tax-exempt organizations and state or local
government agencies are not eligible for this type of SEP.
TAXATION OF DISTRIBUTIONS. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
REQUIRED DISTRIBUTIONS. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
TAX-FREE ROLLOVERS. Generally, rollovers and direct transfers may be made to
and from SEPs in the same manner as described above for IRAs, subject to the
same conditions and limitations.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS
AND TAX-EXEMPT ORGANIZATIONS
PURCHASE PAYMENTS. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Certificates offered by this Prospectus. The Certificate is owned by the
employer and is subject to the claims of the employer's creditors. The employee
has no rights or interest in the Certificate and is entitled only to payment in
accordance with the EDCP provisions.
7
<PAGE>
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Certificate must be distributed within 15
years if the beneficiary is not the employee's surviving spouse.
TAX-FREE TRANSFERS. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded, non-
qualified deferred compensation plans for a select group of management or highly
compensated employees and/or for independent contractors. Certain arrangements
of tax-exempt employers entered into prior August 16, 1986, and not subsequently
modified, are also subject to the rules for private taxable employer deferred
compensation plans discussed below. (Unfunded deferred compensation plans of
other tax-exempt employers are generally subject to the requirements of Section
457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Certificate Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Certificate is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no right or interest in the Certificate and is entitled only
to payment from the employer's general assets in accordance with plan
provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
EXCESS DISTRIBUTIONS--15% TAX.
Certain persons, particularly those who participate in more than one tax-
qualified retirement plan, may be subject to an additional tax of 15% on certain
excess aggregate distributions from those plans. In general, excess
distributions are taxable distributions for all tax qualified plans in excess of
a specified annual limit for payments made in the form of an annuity (currently
$150,000) or five times the annual limit for lump sum distributions.
WITHHOLDING
Annuity payments and other amounts received under Certificates are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
8
<PAGE>
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover,
special "backup withholding" rules may require Fortis Benefits to disregard the
recipient's election if the recipient fails to supply Fortis Benefits with a
"TIN" or taxpayer identification number (social security number for
individuals), or if the Internal Revenue Service notifies Fortis Benefits that
the TIN provided by the recipient is incorrect.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits and Fortis Investors have obtained exemptive relief from the
Securities and Exchange Commission in connection with deducting the mortality
and expense risk charge pursuant to the Contracts. In the application for the
exemption, Fortis Benefits and Fortis Investors have represented and undertaken,
among other things, that:
- The level of the mortality and expense risk charge is within the
range of industry practice for comparable annuity contracts;
- This conclusion is based upon a review that Fortis Benefits and
Fortis Investors have conducted of publicly-available information
regarding annuity contracts of other companies and that they will
maintain at their principal office, and make available on request
to the Commission or its staff, a memorandum setting forth the
variable annuity products analyzed and the methodology and results
of the comparative review;
- There is a reasonable likelihood that the proposed distribution
financing arrangements with respect to the Contracts will benefit
the Variable Account and investors in the Contracts, and the basis
for this conclusion is set forth in a memorandum which will be
maintained by Fortis Benefits at its principal office and will be
available to the Commission or its staff on request.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
9
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying statement of net assets of Fortis Benefits
Insurance Company Variable Account D (comprising, respectively, the Fortis
Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money Market,
Asset Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, Global Asset Allocation, Global Bond, and International
Stock Subaccounts, the Norwest Select Fund's ValuGrowth Stock, Intermediate
Bond, and Small Company Stock Subaccounts, and the Scudder Variable Life
Investment Fund's International Subaccount) as of December 31, 1995, and the
related statements of changes in net assets for each of the three years then
ended, except for the Fortis Series Fund, Inc.'s Aggressive Growth, Growth &
Income, and High Yield Subaccounts, the Norwest Select Fund's ValuGrowth Stock,
Intermediate Bond, and Adjustable U.S. Government Reserve Subaccounts, and the
Scudder Variable Life Investment Fund's International Subaccount which are for
the years ended December 31, 1995 and 1994, and the Fortis Series Fund, Inc.'s
Global Asset Allocation, Global Bond, and International Stock Subaccounts and
the Norwest Select Fund's Small Company Stock Subaccount which are for the year
ended December 31, 1995. These financial statements are the responsibility of
the management of Fortis Benefits Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company Variable Account D at December 31, 1995, and the changes in the net
assets for the periods described in the first paragraph, in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
March 22, 1996
1
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1995
<TABLE>
<CAPTION>
NET ASSET
ACCUMULATION VALUE PER
UNITS ACCUMULATION
NET ASSETS OUTSTANDING UNIT
--------------------------------------------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc., at
market value (NOTE 2):
Growth Stock Series (14,845,125 shares;
cost--$312,969,727) $417,045,586 160,429,092 $ 2.60
U.S. Government Securities Series
(15,566,296 shares; cost--$168,961,190) 173,752,550 10,989,914 15.81
Money Market Series (3,440,404 shares;
cost--$36,328,781) 37,247,531 26,960,304 1.38
Asset Allocation Series (19,965,281 shares;
cost--$273,138,256) 317,435,993 148,700,081 2.13
Diversified Income Series (8,518,817 shares;
cost--$100,549,138) 103,901,462 59,213,866 1.75
Global Growth Series (10,685,328 shares;
cost--$134,191,540) 170,655,381 10,846,823 15.73
Aggressive Growth Series (2,987,612 shares;
cost--$32,792,764) 37,867,984 3,033,587 12.46
Growth & Income Series (4,233,867 shares;
cost--$46,752,798) 54,335,341 4,204,163 12.91
High Yield Series (2,610,426 shares;
cost--$26,235,138) 25,420,072 2,321,419 10.94
Global Asset Allocation Series
(1,137,683 shares; cost--$12,644,676) 12,996,659 1,117,596 11.59
Global Bond Series (595,305 shares;
cost--$6,733,321) 6,719,020 574,142 11.74
International Stock Series (1,161,691 shares;
cost--$12,447,863) 13,094,466 1,157,064 11.27
Investments in Norwest Select Fund, at market
value (NOTE 2):
ValuGrowth Stock Fund (395,143 shares;
cost--$4,271,419) 4,757,525 399,783 11.90
Intermediate Bond Fund (279,422 shares;
cost--$2,969,624) 3,068,061 268,586 11.42
Small Company Stock Fund (77,795 shares;
cost--$884,425) 872,082 75,968 11.48
Investment in Scudder Variable Life Investment
Fund, at market value (NOTE 2):
International Portfolio (153,253 shares;
cost--$1,698,125) 1,811,453 155,817 11.63
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
GROWTH STOCK SUBACCOUNT
Investment income:
Dividend income $ 1,840,330 $ 2,224,886 $ 948,153
Policy administration charge (NOTE 3) (124,562) (233,448) (169,101)
Mortality, expense risk and
administrative charges (NOTE 3) (4,926,616) (3,753,659) (2,782,891)
-------------------------------------------------------
Net investment loss (3,210,848) (1,762,221) (2,003,839)
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares 2,244,343 1,017,245 3,047,257
Net change in unrealized appreciation
(depreciation) on investments 81,868,441 (10,439,005) 13,901,070
-------------------------------------------------------
Net increase (decrease) in net assets from
operations 80,901,936 (11,183,981) 14,944,488
Capital transactions:
Purchase of Variable Account D units 43,219,723 76,066,936 122,265,710
Redemption of Variable Account D units (13,094,690 (13,597,387) (41,874,769)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 124,562 233,448 169,101
-------------------------------------------------------
Net increase in net assets from capital
transactions 30,249,595 62,702,997 80,560,042
-------------------------------------------------------
Total increase in net assets 111,151,531 51,519,016 95,504,530
Net assets, beginning of year 305,894,055 254,375,039 158,870,509
-------------------------------------------------------
Net assets, end of year $417,045,586 $305,894,055 $254,375,039
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
3
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES SUBACCOUNT
Investment income:
Dividend income $ 8,296 $ 13,644,959 $ 15,640,218
Policy administration charge (NOTE 3) (33,442) (66,864) (45,857)
Mortality, expense risk and administrative
charges (NOTE 3) (2,226,178) (2,648,040) (2,455,600)
------------------------------------------------------
Net investment (loss) income (2,251,324) 10,930,055 13,138,761
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio shares (2,199,244) (3,898,323) 188,360
Net change in unrealized appreciation
(depreciation) on investments 30,648,947 (24,335,222) (1,343,077)
------------------------------------------------------
Net increase (decrease) in net assets from
operations 26,198,379 (17,303,488) 11,984,044
Capital transactions:
Purchase of Variable Account D units 10,579,162 15,189,139 92,154,284
Redemption of Variable Account D units (28,554,947) (60,391,902) (4,858,838)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 33,442 66,864 45,857
------------------------------------------------------
Net (decrease) increase in net assets from capital
transactions (17,942,343) (45,135,899) 87,341,303
------------------------------------------------------
Total increase (decrease) in net assets 8,256,036 (62,439,387) 99,325,347
Net assets, beginning of year 165,496,514 227,935,901 128,610,554
------------------------------------------------------
Net assets, end of year $173,752,550 $165,496,514 $227,935,901
------------------------------------------------------
------------------------------------------------------
</TABLE>
4
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET SUBACCOUNT
Investment income:
Dividend income $ 1,390,716 $ - $ 662,017
Policy administration charge (NOTE 3) (5,400) (9,884) (8,434)
Mortality, expense risk and administrative
charges (NOTE 3) (485,370) (491,242) (324,912)
------------------------------------------------------
Net investment income (loss) 899,946 (501,126) 328,671
Net realized gain (loss) on redemption of
Fortis Series Fund, Inc. portfolio shares 624,600 194,135 (124,353)
Net change in unrealized appreciation on
investments 29,966 1,255,055 115,924
------------------------------------------------------
Net increase in net assets from operations 1,554,512 948,064 320,242
Capital transactions:
Purchase of Variable Account D units 32,857,484 52,961,094 67,273,648
Redemption of Variable Account D units (37,771,314) (40,583,910) (66,414,029)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 5,400 9,884 8,434
------------------------------------------------------
Net (decrease) increase in net assets from
capital transactions (4,908,430) 12,387,068 868,053
------------------------------------------------------
Total (decrease) increase in net assets (3,353,918) 13,335,132 1,188,295
Net assets, beginning of year 40,601,449 27,266,367 26,078,072
------------------------------------------------------
Net assets, end of year $37,247,531 $40,601,499 $27,266,367
------------------------------------------------------
------------------------------------------------------
</TABLE>
5
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
ASSET ALLOCATION SUBACCOUNT
Investment income:
Dividend income $ 12,053,233 $ 9,186,739 $ 5,851,029
Policy administration charge (NOTE 3) (57,743) (102,783) (61,440)
Mortality, expense risk and administrative
charges (NOTE 3) (3,776,116) (3,050,115) (1,873,117)
------------------------------------------------------
Net investment income 8,219,374 6,033,841 3,916,472
Net realized gain on redemption of Fortis
Series Fund, Inc. portfolio shares 657,519 283,379 31,953
Net change in unrealized appreciation
(depreciation) on investments 41,467,924 (9,690,299) 7,446,592
------------------------------------------------------
Net increase (decrease) in net assets from
operations 50,344,817 (3,373,079) 11,395,017
Capital transactions:
Purchase of Variable Account D units 30,488,918 61,560,040 98,673,481
Redemption of Variable Account D units (7,551,884) (6,821,686) (214,170)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 57,743 102,783 61,440
------------------------------------------------------
Net increase in net assets from capital
transactions 22,994,777 54,841,137 98,520,751
------------------------------------------------------
Total increase in net assets 73,339,594 51,468,058 109,915,768
Net assets, beginning of year 244,096,399 192,628,341 82,712,573
------------------------------------------------------
Net assets, end of year $317,435,993 $244,096,399 $192,628,341
------------------------------------------------------
------------------------------------------------------
</TABLE>
6
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED INCOME SUBACCOUNT
Investment income:
Dividend income $ 4,826 $ 7,607,329 $ 6,042,059
Policy administration charge (NOTE 3) (18,101) (29,237) (12,517)
Mortality, expense risk and administrative
charges (NOTE 3) (1,319,921) (1,344,477) (761,387)
------------------------------------------------------
Net investment (loss) income (1,333,196) 6,233,615 5,268,155
Net realized (loss) gain on redemption of
Fortis Series Fund, Inc. Portfolio shares (722,251) (767,738) 89,595
Net change in unrealized appreciation
(depreciation) on investments 16,334,785 (12,476,808) (341,431)
------------------------------------------------------
Net increase (decrease) in net assets from
operations 14,279,338 (7,010,931) 5,016,319
Capital transactions:
Purchase of Variable Account D units 6,335,373 25,554,696 59,086,577
Redemption of Variable Account D units (11,835,588) (14,240,935) (1,544,834)
Policy administration charged redeemed
from Fortis Series Fund, Inc. 18,101 29,237 12,517
------------------------------------------------------
Net (decrease) increase in net assets from
capital transactions (5,482,114) 11,342,998 57,554,260
------------------------------------------------------
Total increase in net assets 8,797,224 4,332,067 62,570,579
Net assets, beginning of year 95,104,238 90,772,171 28,201,592
------------------------------------------------------
Net assets, end of year $103,901,462 $95,104,238 $90,772,171
------------------------------------------------------
------------------------------------------------------
</TABLE>
7
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
GLOBAL GROWTH SUBACCOUNT
Investment income:
Dividend income $ 889,918 $ 829,695 $ 155,024
Policy administration charge (NOTE 3) (45,368) (53,708) (8,113)
Mortality, expense risk and
administrative charges (NOTE 3) (1,926,551) (1,383,450) (349,296)
------------------------------------------------------
Net investment loss (1,082,001) (607,463) (202,385)
Net realized gain on redemption of Fortis
Series Fund, Inc. portfolio shares 489,178 37,068 209,274
Net change in unrealized appreciation
(depreciation) on investments 35,553,129 (3,836,491) 4,261,435
------------------------------------------------------
Net increase (decrease) in net assets from
operations 34,960,306 (4,406,886) 4,268,324
Capital transactions:
Purchase of Variable Account D units 20,455,245 64,953,591 56,621,267
Redemption of Variable Account D units (8,118,814) (2,600,492) (3,262,479)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 45,368 53,708 8,113
------------------------------------------------------
Net increase in net assets from capital
transactions 12,381,799 62,406,807 53,366,901
------------------------------------------------------
Total increase in net assets 47,342,105 57,999,921 57,635,225
Net assets, beginning of year 123,313,276 65,313,355 7,678,130
------------------------------------------------------
Net assets, end of year $170,655,381 $123,313,276 $65,313,355
------------------------------------------------------
------------------------------------------------------
</TABLE>
8
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
AGGRESSIVE GROWTH SUBACCOUNT
Investment income:
Dividend income $ 131,332 $ 45,402
Policy administration charge (NOTE 3) (1,793) (770)
Mortality, expense risk and administrative charges
(NOTE 3) (304,716) (48,160)
-----------------------------------
Net investment loss (175,177) (3,528)
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 534,513 (14,814)
Net change in unrealized appreciation on investments 4,721,034 354,186
-----------------------------------
Net increase in net assets from operations 5,080,370 335,844
Capital transactions:
Purchase of Variable Account D units 25,278,245 11,875,955
Redemption of Variable Account D units (3,729,001) (975,992)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 1,793 770
-----------------------------------
Net increase in net assets from capital transactions 21,551,037 10,900,733
-----------------------------------
Total increase in net assets 26,631,407 11,236,577
Net assets, beginning of year 11,236,577 -
-----------------------------------
Net assets, end of year $37,867,984 $11,236,577
-----------------------------------
-----------------------------------
</TABLE>
9
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
GROWTH & INCOME SUBACCOUNT
Investment income:
Dividend income $ 909,272 $ 154,775
Policy administration charge (NOTE 3) (1,503) (602)
Mortality, expense risk and administrative charges
(NOTE 3) (437,914) (66,282)
-----------------------------------
Net investment income 469,855 87,891
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 35,576 (5,003)
Net change in unrealized appreciation (depreciation)
on investments 7,722,201 (139,658)
-----------------------------------
Net increase (decrease) in net assets from operations 8,227,632 (56,770)
Capital transactions:
Purchase of Variable Account D units 31,904,014 15,287,620
Redemption of Variable Account D units (816,805) (212,455)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 1,503 602
-----------------------------------
Net increase in net assets from capital transactions 31,088,712 15,075,767
-----------------------------------
Total increase in net assets 39,316,344 15,018,997
Net assets, beginning of year 15,018,997 -
-----------------------------------
Net assets, end of year $54,335,341 $15,018,997
-----------------------------------
-----------------------------------
</TABLE>
10
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
HIGH YIELD SUBACCOUNT
Investment income:
Dividend income $ 2,182,916 $ 546,340
Policy administration charge (NOTE 3) (720) (314)
Mortality, expense risk and administrative charges
(NOTE 3) (251,064) (67,430)
-----------------------------------
Net investment income 1,931,132 478,596
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 47,908 (2,813)
Net change in unrealized depreciation on investments (221,078) (596,104)
-----------------------------------
Net increase (decrease) in net assets from operations 1,757,962 (120,321)
Capital transactions:
Purchase of Variable Account D units 14,434,829 13,838,144
Redemption of Variable Account D units (2,740,528) (1,751,048)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 720 314
-----------------------------------
Net increase in net assets from capital transactions 11,695,021 12,087,410
-----------------------------------
Total increase in net assets 13,452,983 11,967,089
Net assets, beginning of year 11,967,089 -
-----------------------------------
Net assets, end of year $25,420,072 $11,967,089
-----------------------------------
-----------------------------------
</TABLE>
11
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
GLOBAL ASSET ALLOCATION SUBACCOUNT
Investment income:
Dividend income $ 345,923
Policy administration charge (NOTE 3) (154)
Mortality, expense risk and administrative charges
(NOTE 3) (77,959)
-------------
Net investment income 267,810
Net realized loss on redemption of Fortis Series Fund, Inc.
portfolio shares (27,354)
Net change in unrealized appreciation on investments 351,983
-------------
Net increase in net assets from operations 592,439
Capital transactions:
Purchase of Variable Account D units 12,634,681
Redemption of Variable Account D units (230,615)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 154
-------------
Net increase in net assets from capital transactions 12,404,220
Total increase in net assets 12,996,659
Net assets, beginning of year -
-------------
Net assets, end of year $12,996,659
-------------
-------------
</TABLE>
12
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
GLOBAL BOND SUBACCOUNT
Investment income:
Dividend income $ 336,887
Policy administration charge (NOTE 3) (174)
Mortality, expense risk and administrative charges (NOTE 3) (49,301)
-------------
Net investment income 287,412
Net realized gain on redemption of Fortis Series Fund, Inc.
portfolio shares 52,221
Net change in unrealized depreciation on investments (14,301)
-------------
Net increase in net assets from operations 325,332
Capital transactions:
Purchase of Variable Account D units 8,616,566
Redemptions of Variable Account D units (2,223,052)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 174
-------------
Net increase in net assets from capital transactions 6,393,688
-------------
Total increase in net assets 6,719,020
Net assets, beginning of year -
-------------
Net assets, end of year $6,719,020
-------------
-------------
</TABLE>
13
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
INTERNATIONAL STOCK SUBACCOUNT
Investment income:
Dividend income $ 180,007
Policy administration charge (NOTE 3) (217)
Mortality, expense risk and administrative charges (NOTE 3) (74,571)
-------------
Net investment income 105,219
Net realized gain on redemption of Fortis Series Fund, Inc.
portfolio shares 1,557
Net change in unrealized appreciation on investments 646,603
-------------
Net increase in net assets from operations 753,379
Capital transactions:
Purchase of Variable Account D units 12,487,255
Redemption of Variable Account D units (146,385)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 217
-------------
Net increase in net assets from capital transactions 12,341,087
-------------
Total increase in net assets 13,094,466
Net assets, beginning of year -
-------------
Net assets, end of year $13,094,466
-------------
-------------
</TABLE>
14
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
VALUGROWTH STOCK SUBACCOUNT
Investment income:
Dividend income $ 50,547 $ -
Policy administration charge (NOTE 3) (58) -
Mortality, expense risk and administrative charges
(NOTE 3) (39,979) (4,796)
-----------------------------------
Net investment income (loss) 10,510 (4,796)
Net realized gain on redemption of Norwest Select
Fund portfolio shares 12,413 499
Net change in unrealized appreciation (depreciation)
on investments 510,859 (24,752)
-----------------------------------
Net increase (decrease) in net assets from operations 533,782 (29,049)
Capital transactions:
Purchase of Variable Account D units 3,099,798 1,400,545
Redemption of Variable Account D units (225,312) (22,297)
Policy administration charge redeemed from Norwest
Select Fund 58 -
-----------------------------------
Net increase in net assets from capital transactions 2,874,544 1,378,248
-----------------------------------
Total increase in net assets 3,408,326 1,349,199
Net assets, beginning of year 1,349,199 -
-----------------------------------
Net assets, end of year $4,757,525 $1,349,199
-----------------------------------
-----------------------------------
</TABLE>
15
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
INTERMEDIATE BOND SUBACCOUNT
Investment income:
Dividend income $ 172,247 $ -
Policy administration charge (NOTE 3) (8) -
Mortality, expense risk and administrative charges
(NOTE 3) (27,041) (2,966)
-----------------------------------
Net investment income (loss) 145,198 (2,966)
Net realized gain (loss) on redemption of Norwest
Select Fund portfolio shares 24,440 (113)
Net change in unrealized appreciation on investments 98,386 51
-----------------------------------
Net increase (decrease) in net assets from operations 268,024 (3,028)
Capital transactions:
Purchase of Variable Account D units 2,635,557 701,952
Redemption of Variable Account D units (521,303) (13,149)
Policy administration charge redeemed from Norwest
Select Fund 8 -
-----------------------------------
Net increase in net assets from capital transactions 2,114,262 688,803
-----------------------------------
Total increase in net assets 2,382,286 685,775
Net assets, beginning of year 685,775 -
-----------------------------------
Net assets, end of year $3,068,061 $685,775
-----------------------------------
-----------------------------------
</TABLE>
16
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
ADJUSTABLE U.S. GOVERNMENT RESERVE SUBACCOUNT
Investment income:
Dividend income $ 1,035 $ -
Policy administration charge (NOTE 3) - -
Mortality, expense risk and administrative charges
(NOTE 3) (2,147) (2,873)
-----------------------------------
Net investment loss (1,112) (2,873)
Net realized gain on redemption of Norwest Select
Fund portfolio shares 5,426 1,784
Net change in unrealized (depreciation) appreciation
on investments (4,872) 4,872
-----------------------------------
Net (decrease) increase in net assets from operations (558) 3,783
CAPITAL TRANSACTIONS:
Purchase of Variable Account D units 394,984 801,713
Redemptions of Variable Account D Units (968,236) (231,686)
Policy administration charge redeemed from Norwest
Select Fund - -
-----------------------------------
Net (decrease) increase in net assets from capital
transactions (573,252) 570,027
-----------------------------------
Total (decrease) increase in net assets (573,810) 573,810
Net assets, beginning of year 573,810 -
-----------------------------------
Net assets, end of year $ - $573,810
-----------------------------------
-----------------------------------
</TABLE>
17
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
SMALL COMPANY STOCK SUBACCOUNT
Investment income:
Dividend income $ 28,697
Policy administration charge (NOTE 3) -
Mortality, expense risk and administrative charges (NOTE 3) (2,828)
-------------
Net investment income 25,869
Net realized loss on redemption of Norwest Select Fund
portfolio shares (329)
Net change in unrealized depreciation on investments (12,343)
-------------
Net increase in net assets from operations 13,197
Capital transactions:
Purchase of Variable Account D units 862,524
Redemption of Variable Account D units (3,639)
Policy administration charge redeemed from Norwest
Select Fund -
-------------
Net increase in net assets from capital transactions 858,885
-------------
Total increase in net assets 872,082
Net assets, beginning of year -
-------------
Net assets, end of year $872,082
-------------
-------------
</TABLE>
18
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
INTERNATIONAL PORTFOLIO SUBACCOUNT
Investment income:
Dividend income $ 5,274 $ -
Policy administration charge (NOTE 3) (7) -
Mortality, expense risk and administrative charges
(NOTE 3) (19,707) (3,751)
-----------------------------------
Net investment loss (14,440) (3,751)
Net realized loss on redemption of Scudder Variable
Life Investment Fund portfolio shares (4,479) (2,393)
Net change in unrealized appreciation (depreciation)
on investments 150,241 (36,913)
-----------------------------------
Net increase (decrease) in net assets from operations 131,322 (43,057)
Capital transactions:
Purchase of Variable Account D units 1,133,126 1,037,359
Redemption of Variable Account D units (431,126) (16,178)
Policy administration charge redeemed from Scudder
Variable Life Investment Fund 7 -
-----------------------------------
Net increase in net assets from capital transactions 702,007 1,021,181
-----------------------------------
Total increase in net assets 833,329 978,124
Net assets, beginning of year 978,124 -
-----------------------------------
Net assets, end of year $1,811,453 $ 978,124
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1995
1. GENERAL
Fortis Benefits Insurance Company Variable Account D (the Account) was
established as a segregated asset account of Fortis Benefits Insurance Company
(Fortis Benefits) on October 14, 1987 under Minnesota Law. The Account is
registered under the Investment Company Act of 1940 as a unit investment trust.
Fortis Benefits was founded in 1910. At the end of 1995, Fortis Benefits had
approximately $86 billion of total life insurance in force. Fortis Benefits is a
Minnesota corporation and is qualified to sell life insurance and annuity
contracts in the District of Columbia and in all states except New York. Fortis
Benefits is an indirectly wholly-owned subsidiary of Fortis, Inc., which is
itself indirectly owned 50% by N.V. AMEV and 50% by Compagnie Financiere et de
Reassurance du Group AG ("Group AG"). Fortis, Inc. manages the United States
operations for these two companies.
N.V. AMEV is a diversified financial services company headquartered in Utrecht,
The Netherlands, where its insurance operations began in 1847. Group AG is a
diversified financial services company headquartered in Brussels, Belgium, where
its insurance operations began in 1824. N.V. AMEV and Group AG have merged their
operating companies under the trade name of Fortis. The Fortis group of
companies is active in insurance, banking and financial services, and real
estate development in The Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. The Fortis group of companies had over $140 billion
in assets at the end of 1995.
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to the portfolios in exchange for investment
advisory and management fees. Investment advisory and management fees are based
on each portfolio's daily net assets and decrease in reduced percentages as
average daily net assets increase. The fees represent an investment expense to
Fortis Series Fund, Inc. which reduces the portfolios' net assets. The fees
charged by Fortis Advisers, Inc. are not available on an individual variable
account basis. Fees for all variable accounts to which Fortis Advisers, Inc.
provided investment management services amounted to $7,819,224, $5,839,044 and
$3,748,274 in 1995, 1994 and 1993, respectively.
20
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
There are sixteen subaccounts within the Account. The investment objectives and
policies of each of the Account's subaccounts are as follows:
- GROWTH STOCK SUBACCOUNT--seeks growth of capital through short-term
and long-term appreciation.
- U.S. GOVERNMENT SECURITIES SUBACCOUNT--seeks to earn a high level of
current income consistent with prudent investment risk.
- MONEY MARKET SUBACCOUNT--seeks high levels of capital stability and
liquidity and, to the extent consistent with these objectives, a high
level of current income.
- ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of return
on capital primarily through increased ownership of equity securities
during periods when stock market conditions appear favorable and
short-term and long-term debt instruments during periods when stock
market conditions are less favorable.
- DIVERSIFIED INCOME SUBACCOUNT--seeks high levels of current income by
investing primarily in a diversified portfolio of government
securities and investment-grade corporate bonds.
- GLOBAL GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities that are allocated among diverse international
markets.
- AGGRESSIVE GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities.
- GROWTH & INCOME SUBACCOUNT--seeks growth of capital and current income
through ownership of equity securities that provide an income
component and the potential for growth.
- HIGH YIELD SUBACCOUNT--seeks maximum total return through current
income from, and capital appreciation of, a diversified portfolio of
high-yielding fixed-income securities.
21
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- GLOBAL ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of
return through ownership of foreign and domestic equity securities
when stock market conditions appear favorable and short-term and
long-term foreign and domestic debt instruments when stock market
conditions are less favorable.
- GLOBAL BOND SUBACCOUNT--seeks total return from current income and
capital appreciation by investing in a global portfolio of
high-quality fixed-income securities.
- INTERNATIONAL STOCK SUBACCOUNT--seeks capital appreciation by
investing primarily in equity securities of non-United States
companies.
- VALUGROWTH STOCK SUBACCOUNT--seeks growth of capital by investing
principally in medium and large capitalization companies that possess
above-average growth characteristics and attractive valuations.
- INTERMEDIATE BOND SUBACCOUNT--seeks income through investing primarily
in a diversified portfolio of government and corporate bonds in an
evenly balanced maturity structure.
- SMALL COMPANY STOCK SUBACCOUNT--seeks growth of capital by investing
primarily in the common stock of small and medium-size domestic
companies that are either in the early stages of development or that
produce goods and services having a favorable prospect for growth.
- INTERNATIONAL PORTFOLIO SUBACCOUNT--seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity
securities.
22
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS
Investments in shares of Fortis Series Fund, Inc., the Norwest Select Fund and
the Scuddder Variable Life Investment Fund (the Funds) are stated at market
value, which is based on the percentage owned by the Account of the net asset
value of the respective portfolios of the Funds. The Funds' net asset value is
based on market quotations of the securities held in the portfolios. The cost of
investments sold and redeemed is determined using the average cost method.
Unrealized appreciation or depreciation of investments represents the Account's
share of the mutual fund's undistributed net investment income, undistributed
realized gains and losses and unrealized appreciation or depreciation in the
Funds' investments.
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases and proceeds from sales of
shares were as follows:
Year ended December 31, 1995:
<TABLE>
<CAPTION>
SHARES
--------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 1,474,490 534,461 $38,219,083 $13,219,252
U.S. Government Securities Series 774,095 2,822,335 8,256,814 28,588,389
Money Market Series 3,006,701 3,520,068 32,427,432 37,776,714
Asset Allocation Series 1,708,881 515,324 26,748,824 7,609,627
Diversified Income Series 436,611 1,063,223 5,016,172 11,853,689
Global Growth Series 1,232,021 624,923 18,345,602 8,164,182
Aggressive Growth Series 2,130,122 300,532 24,945,836 3,730,794
Growth & Income Series 2,741,398 71,626 31,425 ,809 818,308
High Yield Series 1,387,101 266,413 14,170,291 2,741,248
Global Asset Allocation Series 1,130,399 23,288 12,516,549 230,769
Global Bond Series 759,105 193,919 8,564,998 2,223,226
International Stock Series 1,159,824 14,425 12,411,656 146,602
Norwest Select Fund:
ValuGrowth Stock Fund 273,933 20,542 3,057,527 225,370
Intermediate Bond Fund 242,873 48,103 2,608,128 521,311
Adjustable U.S. Government Reserve Fund 38,761 94,688 392,834 968,236
Small Company Stock Fund 75,540 314 859,233 3,639
Scudder Variable Life Investment Fund:
International Portfolio 101,034 39,728 1,113,265 431,133
</TABLE>
23
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Year ended December 31, 1994:
<TABLE>
Caption>
SHARES
------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 3,266,440 631,035 $72,583,504 $13,830,835
U.S. Government Securities Series 1,186,119 5,847,237 12,608,370 60,458,766
Money Market Series 5,458,066 3,903,494 52,479,135 40,593,794
Asset Allocation Series 4,191,226 496,813 58,622,192 6,924,469
Diversified Income Series 2,065,335 1,262,643 24,259,910 14,270,172
Global Growth Series 5,023,325 214,984 63,626,783 2,654,200
Aggressive Growth Series 1,246,139 103,726 11,828,451 976,762
Growth & Income Series 1,497,281 21,061 15,217,894 213,057
High Yield Series 1,381,673 175,340 13,771,173 1,751,362
Norwest Select Fund:
ValuGrowth Stock Fund 139,803 2,270 1,396,722 22,296
Intermediate Bond Fund 70,247 1,326 698,920 13,149
Adjustable U.S. Government Reserve Fund 78,556 22,627 798,991 231,685
Scudder Variable Life Investment Fund:
International Portfolio 93,016 1,517 1,031,994 16,179
</TABLE>
Year ended December 31, 1993:
<TABLE>
<CAPTION>
SHARES
------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 5,569,173 2,023,801 $119,659,211 $42,043,870
U.S. Government Securities Series 7,847,700 430,131 89,739,057 4,904,695
Money Market Series 6,363,355 6,434,104 66,955,179 66,422,463
Asset Allocation Series 7,003,489 20,087 96,874,500 275,610
Diversified Income Series 4,741,780 124,081 58,340,524 1,557,351
Global Growth Series 4,674,292 29,735 56,287,883 3,270,592
</TABLE>
24
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The number of shares and cost of shares issued from reinvestment of dividends
with the Funds were as follows:
Year ended December 31, 1995:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
--------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 67,820 $ 1,840,330
U.S. Government Securities Series 834 8,296
Money Market Series 134,020 1,390,716
Asset Allocation Series 771,842 12,053,233
Diversified Income Series 439 4,826
Global Growth Series 57,730 889,918
Aggressive Growth Series 10,929 131,332
Growth & Income Series 72,502 909,272
High Yield Series 225,440 2,182,916
Global Asset Allocation Series 30,572 345,923
Global Bond Series 30,119 336,887
International Stock Series 16,292 180,007
Norwest Select Fund:
ValuGrowth Stock Fund 4,219 50,547
Intermediate Bond Fund 15,730 172,247
Small Company Stock Fund 2,569 28,697
Scudder Variable Life Investment Fund:
International Portfolio 448 5,274
Year ended December 31, 1994:
<CAPTION>
COST OF
SHARES SHARES
--------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 101,668 $ 2,224,886
U.S. Government Securities Series 1,448,879 13,644,959
Money Market Series - -
Asset Allocation Series 679,533 9,186,739
Diversified Income Series 731,228 7,607,329
Global Growth Series 68,077 829,695
Aggressive Growth Series 4 ,680 45,402
Growth & Income Series 15,373 154,775
High Yield Series 57,965 546,340
</TABLE>
25
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
---------------------------
<S> <C> <C>
Norwest Select Fund:
ValuGrowth Stock Fund - $ -
Intermediate Bond Fund - -
Adjustable U.S. Government Reserve Fund - -
Scudder Variable Life Investment Fund:
International Portfolio - -
Year ended December 31, 1993:
<CAPTION>
COST OF
SHARES SHARES
---------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 41,732 $ 948,153
U.S. Government Securities Series 1,425,752 15,640,218
Money Market Series 64,733 662,017
Asset Allocation Series 415,385 5,851,029
Diversified Income Series 505,980 6,042,059
Global Growth Series 12,263 155,024
</TABLE>
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATIONAL EXPENSES
Fortis Benefits assumes all organizational expenses of the Account.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdictions upon receipt of purchase payments, Fortis Benefits pays such taxes
on behalf of the contract owner and then will deduct a charge for these amounts
from the contract value upon surrender, death of the annuitant or contract
owner, or annuitization of the contract. In jurisdictions where premium taxes or
similar assessments are imposed at the time annuity payments begin, Fortis
Benefits will deduct a charge on a pro rata basis from the contract value at
that time.
26
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
POLICY ADMINISTRATION CHARGE
A $35 annual policy administrative charge is deducted each contract year from
the value of each Opportunity Variable and Masters Variable Annuity contract or
$30 for each Norwest Passage Variable Annuity contract on each anniversary of
the contract date or upon total surrender of the contract. This charge will be
waived during the accumulation period if the contract value at the end of the
contract year (or upon total surrender) is $25,000 or more.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Account a daily charge for
mortality and expense risk at an annual rate of 1.25% of the net assets
representing equity of contract owners held in each subaccount.
ADMINISTRATIVE CHARGE
Fortis Benefits assesses each Fortis Series Fund, Inc. subaccount a daily charge
for administrative expenses at an annual rate of .10% of the net assets
representing equity of contract owners. For the Norwest Select Fund and Scudder
Variable Life Investment Fund subaccounts, the administrative charge is assessed
at an annual rate of .15%.
SURRENDER CHARGE
FREE SURRENDERS--The following amounts can be withdrawn from the contract
without a surrender charge:
- Any purchase payments received more than five years prior to the surrender
date for Opportunity and Norwest Passage Variable Annuity contracts and
seven years for Masters Variable Annuity contracts.
27
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
- In any contract year, up to 10% of the purchase payments received less
than five years prior to the surrender date for Opportunity and Norwest
Passage Variable Annuity contracts and seven years prior to the surrender
date for Masters Variable Annuity contracts.
- For Norwest Passage and Masters Variable Annuity contracts, any earnings
that have not been previously surrendered.
AMOUNT OF SURRENDER CHARGE--Surrender charges apply only if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders. The
surrender charge is based on a percentage of the amount of purchase payments
surrendered. The percentage of payments is set at 5% during the first year on
the Opportunity and Norwest Passage Variable Annuity contracts with a sliding
scale down to zero by the end of the fifth year, and is set at 7% during the
first year of the Masters Variable Annuity contracts with a sliding scale down
to zero by the end of the seventh year. Surrender charges collected by Fortis
Benefits were $2,205,945, $1,988,863 and $857,644 in 1995, 1994 and 1993,
respectively.
4. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on income distributions received by the
subaccounts.
28
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Certificates, yield and total
return information for the Subaccounts of the Variable Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7), with the resulting yield figure carried to the nearest hundredth of one
percent. The seven day yield for the Money Market Subaccount as of December 31,
1995 was 5.59%.
An effective yield may also be quoted for the Money Market Subaccount.
Effective yield is calculated by compounding the current yield as follows:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1995 was 5.75%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
A-B 6
2[(----)+1) -1]
CD
Where:
A = net investment income earned during the period by the Portfolio whose
shares are owned by the Subaccount,
B = expenses accrued for the period,
C = the average daily number of Accumulation Units outstanding during the
period, and
D = the offering price per Accumulation Unit at the end of the last day of
the period.
The following table sets figures for the thirty days ended December 31, 1995.
Subaccount Yield
---------- -----
U.S. Government Securities. . . . . . 9.83%
Diversified Income . . . . . . . . . 7.76%
High Yield. . . . . . . . . . . . . . 4.37%
Global Bond . . . . . . . . . . . . . 2.83%
A-1
<PAGE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
n
P(1 + T) = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1000
purchase payment made at the beginning of the period.
The following table shows total average annual rates of return for the period
indicated:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR COMMENCEMENT OF
PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
SUBACCOUNT DEC. 31, 1995 DEC. 31, 1995(1) DEC. 31, 1995
- ---------- ------------- ---------------- -------------
<S> <C> <C> <C>
Growth Stock 22.45% 12.70% 11.52%
U.S. Government Securities 13.71% 3.80% 4.43%
Diversified Income 12.19% 4.80% 5.19%
Asset Allocation 16.86% 8.85% 8.38%
Global Growth 25.24% N/A 10.35%
High Yield 12.25% N/A 1.44%
Growth & Income 24.76% N/A 12.67%
Aggressive Growth 23.70% N/A 10.50%
Global Bond 17.43% N/A 17.43%
Global Asset Allocation 12.42% N/A 12.42%
International Stock 9.22% N/A 9.22%
</TABLE>
________________________
(1) Commencing with effective date of initial registration statement for Global
Growth Subaccount on May 1, 1992, U.S. Government Securities Subaccount on
May 1, 1989, High Yield Subaccount, Growth & Income Subaccount, and
Aggressive Growth Subaccount on May 1, 1994, Global Bond Subaccount, Global
Asset Alocation Subaccount, and International Stock Subaccount on January
2, 1995, and for all other Subaccounts on May 2, 1988.
CUMULATIVE TOTAL RETURN
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = CSV - P 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
A-2
<PAGE>
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000 purchase
payment made at the beginning of the period.
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR COMMENCEMENT OF
PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
SUBACCOUNT DEC. 31, 1995 DEC. 31, 1995(1) DEC. 31, 1995
- ---------- ------------- ---------------- -------------
<S> <C> <C> <C>
Growth Stock 22.45% 81.81% 130.70%
U.S. Government Securities 13.71% 20.49% 33.55%
Diversified Income 12.19% 26.39% 47.40%
Asset Allocation 16.86% 52.81% 85.40%
Global Growth 25.24% N/A 43.54%
High Yield 12.25% N/A 2.41%
Growth & Income 24.76% N/A 22.04%
Aggressive Growth 23.70% N/A 17.61%
Global Bond 17.43% N/A 17.43%
Global Asset Allocation 12.42% N/A 12.42%
International Stock 9.22% N/A 9.22%
</TABLE>
__________________________
(1) Commencing with effective date of initial registration statement for Global
Growth Subaccount on May 1, 1992, U.S. Government Securities Subaccount on
May 1, 1989, High Yield Subaccount, Growth & Income Subaccount and
Aggressive Growth Subaccount on May 1, 1994, Global Bond Subaccount, Global
Asset Alocation Subaccount, and International Stock Subaccount on January
2, 1995, and for all other Subaccounts on May 2, 1988.
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures
do reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
Fortis Benefits may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
Rating Service Category
-------------- --------
Aggressive Growth Subaccount
Morningstar Publications, Inc. aggressive growth
Lipper Analytical Services, Inc. small company growth
Global Growth Subaccount
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. global
Growth Stock Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. capital appreciation
A-3
<PAGE>
Growth and Income Subaccount
Morningstar Publications, Inc. growth and income
Lipper Analytical Services, Inc. growth and income
Asset Allocation Subaccount
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. flexible portfolios
High Yield Subaccount
Morningstar Publications, Inc. high yield
Lipper Analytical Services, Inc. high current yield
Diversified Income Subaccount
Morningstar Publications, Inc. corporate bond
Lipper Analytical Services, Inc. general bond
U.S. Government Subaccount
Morningstar Publications, Inc. U.S. government bond
Lipper Analytical Services, Inc. U.S. government
Money Market Subaccount
Morningstar Publications, Inc. money market
Lipper Analytical Services, Inc. money market
International Stock Subaccount
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. international equity
Global Asset Allocation Subaccount
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. global flexible
Global Bond Subaccount
Morningstar Publications, Inc. international bond
Lipper Analytical Services, Inc. world income
A-4
<PAGE>
Aggressive Growth Subaccount
Morningstar Publications, Inc. aggressive growth
Lipper Analytical Services, Inc. small company growth
Growth and Income Subaccount
Morningstar Publications, Inc. growth and income
Lipper Analytical Services, Inc. growth and income
High Yield Subaccount
Morningstar Publications, Inc. high yield
Lipper Analytical Services, Inc. high current yield
Blue Chip Stock Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. growth
Value Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. growth
S & P 500 Index Subaccount
Morningstar Publications, Inc. growth & income
Lipper Analytical Services, Inc. S & P 500 Index
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENT AND EXHIBITS
a. Financial Statements included in Part A:
With Respect to Fortis Benefits Insurance Company:
Report of Independent Auditors.
Balance Sheets for the years ended December 31, 1995 and 1994.
Statements of Income, Statements of Changes in Shareholder's Equity
and Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.
Notes to Financial Statements.
Financial Statements included in Part B:
With Respect to Variable Account D of Fortis Benefits Insurance Company:
Report of Independent Auditors.
Statement of Net Assets for the year ended December 31, 1995.
Statements of Changes in Net Assets for the year ended December 31,
1995, 1994 and 1993.
Notes to Financial Statements.
b. Exhibits:
1. Resolution of the Board of Directors of Fortis Benefits Insurance
Company effecting the establishment of Variable Account D
(incorporated by reference from Form N-4 of Fortis Benefits and its
Variable Account D filed on December 31, 1987, File No. 33-19421).
2. Not applicable.
3. (a) Form of Principal Underwriter and Servicing Agreement
(incorporated by reference from Form N-4 registration statement
filed by Fortis Benefits and its Variable Account D on January
11, 1994, File No. 33-73986);
<PAGE>
(b) Form of Amendment to Principal Underwriting Agreement
(incorporated by reference from Form N-4 Registration Statement
filed by Fortis Benefits and its Variable Account D on January
11, 1994, File No. 33-73986);
(c) Form of Dealer Sales Agreement (incorporated by reference from
Form N of Registration Statement of Fortis Benefits filed
December 22, 1994, File No. 33-19421);
4. (a) Form of Combination Fixed and Variable Group Annuity Contract
Including Contract Application Form (included as part of Post-
Effective Amendment to this form N-4 Registration Statement filed
March 2, 1992);
(b) Form of Certificate to be used in connection with Contract filed
as Exhibit 4 (a) (included as part of Post-Effective Amendment
No. 1 to this Form N-4 Registration Statement filed March 2,
1992);
(c) Form of Fixed and Variable Annuity Contract (included as part of
Post-Effective Amendment No. 2 to this Form N-4 Registration
Statement filed April 30, 1992);
(d) Form of IRA Endorsement (included as part of Pre-effective
Amendment No. 1 to this Form N-4 Registration Statement filed
March 28, 1991);
(e) Form of Section 403(b) Annuity Endorsement (included as part of
Pre-effective Amendment No. 1 to this Form N-4 Registration
Statement filed March 28, 1991);
(f) Form of Endorsement (filed as a part of Post-Effective Amendment
No. 8 to this Form N-4 registration statement filed April 27,
1995);
(g) Nursing Care/Hospitalization Waiver of Surrender Charge Rider
(incorporated by reference from Form N-4 Registration Statement
filed by Fortis Benefits and its Variable Account D on April 27,
1995, File No. 33-19421).
5. (a) Form of Application (including telephone transfer authorization
form) to be used in connection with Certificate filed as Exhibit
4 (b) (included as part of Post-Effective Amendment No. 1 to this
Form N-4 Registration Statement filed March 2, 1992);
(b) Form of Application (including telephone transfer authorization
form) to be used in connection with
<PAGE>
Contract filed as Exhibit 4 (c) (included as part of Post-
Effective Amendment No. 2 to this Form N-4 Registration Statement
filed April 30, 1992);
(c) Annuity Contract Exchange Form (incorporated by reference from
1933 Act Pre-Effective Amendment No. 1 to Form N-4 registration
statement filed by Fortis Benefits and its Variable Account D on
April 18, 1988, File No. 33-19421).
6. (a) Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from Form S-6 Registration Statement
of Fortis Benefits and its Variable Account C filed on March 17,
1986, File No. 33-03919);
(b) By-laws of Fortis Benefits Insurance Company (incorporated by
reference from Form S-6 Registration Statement of Fortis Benefits
and its Variable Account C filed on March 17, 1986, File No. 33-
03919);
(c) Amendment to Articles of Incorporation and Bylaws dated November
21, 1991 (included as part of Post-Effective Amendment No. 1 to
this Form N-4 Registration Statement filed March 2, 1992).
7. None.
8. None.
9. Opinion and consent of Douglas R. Lowe, Esq., Assistant General
Counsel of Fortis Benefits Insurance Company, as to the legality of
the securities being registered (included as part of the original
filing of this Form N-4 Registration Statement filed on November 1,
1990).
10. (a) Consent of Ernst & Young LLP.
(b) Power of Attorney for Messrs. Freedman, Mackin, Keller and
Pollock (incorporated by reference from Form S-6 Registration
Statement of Fortis Benefits and its Variable Account C filed on
December 17, 1993, File No. 33-73138).
11. Financial Statement Schedules.
12. Not applicable.
13. Schedules of computation of each performance quotation provided in the
registration statement pursuant to Item 21.
<PAGE>
14. Financial Data Schedules--not applicable since financials were
previously filed.
Item 25. DIRECTORS AND OFFICERS OF FORTIS BENEFITS
The directors, executive officers, and, to the extent responsible for
variable insurance product operations, other officers of Fortis Benefits are
listed below.
<TABLE>
<CAPTION>
Name and Principal
Business Address Offices with Depositor
- ---------------- ----------------------
<S> <C>
Officer-Directors
- -----------------
Robert Brian Pollock (4) President and Chief Executive Officer
Thomas Michael Keller (5) President--Fortis Healthcare
Dean C. Kopperud (1) President--Fortis Financial Group
Other Directors
- ---------------
Allen Royal Freedman (2) Chairman of the Board
Henry Carroll Makin (2)
Arie Aristide Fakkert (3)
Other Officers
- --------------
Michael John Peninger (4) Senior Vice President and
Chief Financial Officer
Larry A. Medin (1) Senior Vice President-Marketing
and Sales
Anthony J. Rotundi (1) Senior Vice President - Life
Operations
Rhonda J. Schwartz(1) Senior Vice President and
General Counsel--Life and
Investment Products
Jon H. Nicholson (1) Vice President -- Annuities
</TABLE>
___________________________
(1) Address: Fortis Benefits Insurance Company, P.O. Box 64271, St. Paul, MN
55164.
<PAGE>
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
(3) Address: Fortis AMEV, Archmideslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells, Milwaukee, WI 53201.
Item 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Variable Accounts C and D of Fortis Benefits Insurance Company are separate
accounts of Fortis Benefits. These separate accounts, certain separate accounts
assumed from St. Paul Life Insurance Company, and Fortis Series Fund, Inc. may
be deemed to be controlled by Fortis Benefits, although Fortis Benefits follows
voting instructions of variable insurance contract owners with respect to voting
on certain important matters in connection with these entities. All of these
entities are created under Minnesota law and are the funding media for variable
life insurance and annuity contracts issued or assumed by Fortis Benefits.
The chart indicating the persons controlled by or under common control with
Fortis Benefits is hereby incorporated by reference from the response to Item 26
in Post-Effective Amendment No. 24 to this Form N-4 registration statement filed
on April 28, 1994. Fortis Benefits has no subsidiaries.
Items 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996 there were 28,598 Certificate owners under Contracts.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Servicing Agreement filed as
Exhibit 3(a) and (b) to this Registration Statement and incorporated herein by
this reference, Fortis Benefits has agreed to indemnify Fortis Investors (and
its agents, employees, and controlling persons) for damages and expenses arising
out of certain material misstatements and omissions in connection with the offer
and sale of the Certificates, unless the misstatement or omission was based on
information supplied by Fortis Investors; provided, however, that no such
indemnity will be made to Fortis Investors or its controlling persons for
liabilities to which they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations under such agreement. This
indemnity could apply to certain directors, officers or controlling persons of
the Separate Account by virtue of the fact that they are also agents, employees
or controlling persons of Fortis Investors. Pursuant to the Principal
Underwriter
<PAGE>
and Servicing Agreement, Fortis Investors has agreed to indemnify Variable
Account D, Fortis Benefits, and each of its officers, directors and controlling
persons for damages and expenses (1) arising out of certain material
misstatements and omissions in connection with the offer and sale of the
Certificates, if the misstatement or omission was based on information furnished
by Fortis Investors or (2) otherwise arising out of Fortis Investors'
negligence, bad faith, willful misfeasance or reckless disregard of its
responsibilities. Pursuant to its Dealer Sales Agreements, a form of which is
filed as Exhibit 3(c) and (d) to this registration statement and is incorporated
herein by this reference, firms that sell the Certificates agree to indemnify
Fortis Benefits, Fortis Investors, the Separate Account, and their officers,
directors, employees, agents, and controlling persons from liabilities and
expenses arising out of the wrongful conduct or omissions of said selling firm
or its officers, directors, employees, controlling persons or agents.
Also, Fortis Benefit's By-Laws (see Article VI, Section 5 thereof, which is
incorporated herein by reference from Exhibit 6(b) to this Registration
Statement) provide for indemnity and payment of expenses of Fortis Benefits's
officers, directors and employees in connection with certain legal proceedings,
judgments, and settlements arising by reason of their service as such, all to
the extent and in the manner permitted by law. Applicable Minnesota law
generally permits payment of such indemnification and expenses if the person
seeking indemnification has acted in good faith and in a manner that he
reasonably believed to be in the best interests of the Company and if such
person has received no improper personal benefit, and in a criminal proceeding,
if the person seeking indemnification also has no reasonable cause to believe
his conduct was unlawful.
Insofar as indemnification for any liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Fortis Benefits or the Separate Account pursuant to the foregoing provisions, or
otherwise, Fortis Benefits and the Separate Account have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Fortis Benefits of expenses incurred or paid by a director,
officer or controlling person of Fortis Benefits or the Separate Account in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the precedent, submit
to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 26. PRINCIPAL UNDERWRITERS
(a) Fortis Investors, Inc. is the principal underwriter for
<PAGE>
Variable Account D. Fortis Investors, Inc. also acts as the principal
underwriter for the following registered investment companies (in addition
to Variable Account D and Fortis Series Fund, Inc.): Variable Account C of
Fortis Benefits, Variable Account A of First Fortis Life Insurance Company,
Fortis Advantage Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis
Fiduciary Fund, Inc., Fortis Growth Fund, Inc., Fortis Money Portfolios,
Inc., Fortis Tax-Free Portfolios, Inc., Fortis Income Portfolios, Inc., and
Special Portfolios, Inc.
(b) The following table sets forth certain information regarding the officers
and directors of the principal underwriter, Fortis Investors, Inc.:
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ----------------------
Robert W. Beltz, Jr.* Vice President
James S. Byrd** Vice President
David G. Carroll** 2nd Vice President
Tamara L. Fagely* Fund Accounting Officer
Thomas D. Gualdoni* Vice President
Joanne M. Herron* Assistant Treasurer
John E. Hite* 2nd Vice President and
Assistant Secretary
Carol M. Houghtby* 2nd Vice President and Treasurer
Sharon R. Jibben** Assistant Secretary
Barbara W. Kirby* 2nd Vice President
Dean C. Kopperud* President and Director
Robert C. Lindberg* Vice President
Larry A. Medin* Senior Vice President - Sales
Chris J. Neuharth** 2nd Vice President
Jon H. Nicholson* Senior Vice President and Director
Michael D. O'Connor* Qualified Plan Counsel
Dennis M. Ott** Senior Vice President
<PAGE>
Stephen M. Poling** Director and Executive
Vice President
Richard P. Roche* Vice President
Anthony J. Rotondi* Senior Vice President
Rhonda J. Schwartz* Senior Vice President,
General Counsel & Secretary
Keith R. Thomson** Vice President
________________________
* Address: 500 Bielenberg Drive, Woodbury, Mn 55125.
** Address: 5500 Wayzata Blvd, Suite 1150, Golden Valley, MN 55416.
*** Address: 515 West Wells Street, Milwaukee, WI 53201.
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 and 31a-3 thereunder are maintained by
Fortis Benefits, Fortis Investors, Inc. and Fortis Advisers, Inc., at 500
Bielenberg Drive, Woodbury, Minnesota 55125.
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may
be accepted;
(b) To include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a toll-
free phone number, postcard, or similar written communication affixed
to or included in the Prospectus that the applicant can call or remove
to send for a Statement of Additional Information;
<PAGE>
(c) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
The Registrant intends to rely on the no-action response dated November 28,
1988 from Ms. Angela C. Goelzer of the Commission staff to the American Council
of Life Insurance concerning the redeemability of Section 403(b) annuity
contracts and the Registrant has complied with the provisions of paragraphs (1)-
(4) thereof.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 26th day of
April, 1996.
Fortis Benefits Insurance Company hereby makes the representation required by
Rule 485(b)(3) under that Act, and further represents that the amended
Registration Statement contains no information that would render Rule 485(b)
unavailable.
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: FORTIS BENEFITS INSURANCE COMPANY
By: _____/s/_________________________________
Robert Brian Pollock, President
FORTIS BENEFITS INSURANCE COMPANY
By: _____/s/_________________________________
Robert Brian Pollock, President
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on April 26, 1996.
Signature Title With Fortis Benefits
- --------- --------------------------
*________________________
Allen R. Freedman Chairman of the Board
*________________________
Henry Carrol Mackin Director
*________________________
Thomas Michael Keller Director
_________________________
Arie Aristide Fakkert Director
___/s/______________________
Dean C. Kopperud Director
___/s/______________________
Robert Brian Pollock President and Director
(Chief Executive Officer)
___/s/______________________
Michael John Peninger Senior Vice President,
Controller and Treasurer (Principal
Accounting Officer and Principal
Financial Officer)
*By: _/s/___________________
Robert Brian Pollock
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
10(a) Consent of Ernst & Young LLP
11 Financial Statement Schedules
13 Performance Computation Schedules
<PAGE>
EXHIBIT 10(a)
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 14, 1996 on the financial statements of Fortis
Benefits Insurance Company and our report dated March 22, 1996 on the financial
statements of Fortis Benefits Insurance Company Variable Account D in the
Registration Statement (Form N-4 No. 33-37577) and related Prospectus being
filed under the Securities Act of 1933 and the Investment Company Act of 1940
for the registration of flexible premium deferred combination variable and fixed
annuity contracts.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 25, 1996
<PAGE>
Report of Independent Auditors
The Board of Directors
Fortis Benefits Insurance Company
We have audited the financial statements of Fortis Benefits Insurance Company as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995 and have issued our report thereon dated February 14,
1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedules I, IV and V included
elsewhere in this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 14, 1996
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ THOUSANDS)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------ ---------- ---------- -------------
<S> <S> <C> <C>
Fixed maturities:
Bonds:
United States Government
and government agencies
and authorities . . . . . . . . . . $ 460,143 $ 497,917 $ 497,917
All other coprorate bonds. . . . . . . 1,491,061 1,577,707 1,577,707
---------- ---------- ----------
Total fixed maturities . . . . . . . . . . . 1,951,204 $2,075,624 2,075,624
----------
----------
Equity securities. . . . . . . . . . . . . . 60,935 $ 78,852 78,852
----------
----------
Mortgage loans on real estate. . . . . . . . 571,050 562,697*
Policy loans . . . . . . . . . . . . . . . . 53,863 53,863
Short Term Investments . . . . . . . . . . . 153,481 153,499
Real Estate and Other investments. . . . . . 11,918 11,918
---------- ----------
Total investments. . . . . . . . . . . . . . $2,802,451 $2,936,453
---------- ----------
---------- ----------
</TABLE>
- -------------------------------
* Differences between cost and carrying values result from certain valuation
allowances and declines in value that are other than temporary.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ASSUMED
GROSS DIVIDED
AMOUNT CEDED ASSUMED NET BY NET
----------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
For the year ended 12/31/95
Life Insurance in Force. . . . . . . . . . . $87,069,238 $1,446,218 $492,018 $86,115,038 0.57%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 253,785 $ 2,492 $ 60 $ 251,353 0.02%
Interest Sensitive and Investment . . . . 48,245 2,169 - 46,076 0.00%
A & H . . . . . . . . . . . . . . . . . . 934,838 3,410 3,472 934,900 0.37%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 1,236,868 $ 8,071 $ 3,532 $ 1,232,329 0.29%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
For the year ended 12/31/94
Life Insurance in Force. . . . . . . . . . . $62,187,163 $1,719,637 $448,854 $60,916,380 0.74%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 212,623 $ 4,035 $ (764) $ 207,824 -0.37%
Interest Sensitive and Investment . . . . 38,782 959 - 37,823 0.00%
A & H . . . . . . . . . . . . . . . . . . 811,733 37,224 2,290 776,799 0.29%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 1,063,138 $ 42,218 $ 1,526 $ 1,022,446 0.15%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
For the year ended 12/31/93
Life Insurance in Force. . . . . . . . . . . $54,426,139 $1,849,797 $370,422 $52,946,764 0.70%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 189,420 $ 2,450 $ 893 $ 187,863 0.48%
Interest Sensitive and Investment . . . . 29,756 978 - 28,778 0.00%
A & H . . . . . . . . . . . . . . . . . . 775,509 37,097 - 738,412 0.00%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 994,685 $ 40,525 $ 893 $ 955,053 0.09%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
</TABLE>
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------------------
AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS & OTHER ACCTS DEDUCTION- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
For the year ended 12/31/95
Reserve for Mortgage Loans. . . . . . . . $7,429 $924 $0 $0 $8,353
For the year ended 12/31/94
Reserve for Mortgage Loans. . . . . . . . 6,324 1,105 0 0 7,429
For the year ended 12/31/93
Reserve for Mortgage Loans. . . . . . . . 4,676 1,648 0 0 6,324
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
U.S. GOVERNMENT SECURITIES SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[(($2,736,375)) 6
2 * { ------------------------- + 1] - 1} = 9.83%
[((10,989,914 * 15.805))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = --------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$1,137.13 $1,137.13 - $1,000
----------------------- = 13.71%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,204.87 - $1,000
------------------ = 20.49%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,335.50 - $1,000
----------------------- = 33.55%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,137.13/$1,000 - 1 = 13.73%
Five years ended December 31, 1995:
1/5
($1,204.87/$1,000) - 1 = 3.80%
Since inception through December 31, 1995:
1/7.67
($1,335.50/$1,000) - 1 = 4.43%
Unit Value Information
----------------------
Unit
Date Value
---------- ------
05/01/89 $10.000
12/31/89 10.756
12/31/90 11.454
12/31/91 12.922
12/31/92 13.529
12/31/93 14.609
12/31/94 13.484
12/31/95 15.805
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
DIVERSIFIED INCOME SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[(($1,301,386)) 6
2 * { ------------------------ + 1] - 1} = 7.76%
[((59,213,865 * 1.754))
Total return is the percentage change between the public offering price of one
subaccount unit at the beginning of the period to the public offering price of
one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$1,121.99 $1,121.99 - $1,000
------------------ = 12.19%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,263.88 - $1,000
------------------ = 26.39%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,474.00 - $1,000
------------------ = 47.40%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,121.99/$1,000 - 1 = 12.19%
Five years ended December 31, 1995:
1/5
($1,263.88/$1,000) - 1 = 4.80%
Since inception through December 31, 1995:
1/7.67
($1,474.00/$1,000) - 1 = 5.19%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
05/01/88 $1.000
12/31/88 1.025
12/31/89 1.135
12/31/90 1.219
12/31/91 1.379
12/31/92 1.457
12/31/93 1.621
12/31/94 1.516
12/31/95 1.754
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH STOCK SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,224.50 $1,224.50 - $1,000
------------------- = 22.45%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,818.07 - $1,000
------------------ = 81.81%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$2,307.00 - $1,000
------------------ = 130.70%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,224.50/$1,000 - 1 = 22.45%
Five years ended December 31, 1995:
1/5
($1,818.07/$1,000) - 1 = 12.70%
Since inception through December 31, 1995:
1/7.67
($2,307.00/$1,000) - 1 = 11.52%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
05/01/88 $1.000
12/31/88 0.999
12/31/89 1.358
12/31/90 1.298
12/31/91 1.966
12/31/92 1.996
12/31/93 2.143
12/31/94 2.054
12/31/95 2.587
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,168.61 $1,168.61 - $1,000
------------------ = 16.86%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,528.11 - $1,000
------------------ = 52.81%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,854.00 - $1,000
------------------ = 85.40%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,168.61/$1,000 - 1 = 16.86%
Five years ended December 31, 1995:
1/5
($1,528.11/$1,000) - 1 = 8.85%
Since inception through December 31, 1995:
1/7.67
($1,854.00/$1,000) - 1 = 8.38%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/88 $1.000
12/31/88 1.020
12/31/89 1.245
12/31/90 1.253
12/31/91 1.578
12/31/92 1.665
12/31/93 1.797
12/31/94 1.773
12/31/95 2.134
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,252.41 $1,252.41 - $1,000
------------------ = 25.24%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,435.40 - $1,000
------------------ = 43.54%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,252.41/$1,000 - 1 = 25.24%
<PAGE>
Since inception through December 31, 1995:
1/3.67
($1,435.40/$1,000) - 1 = 10.35%
Unit Value Information
----------------------
Unit
Date Value
---------- --------
05/01/92 $10.000
12/31/92 10.989
12/31/93 12.784
12/31/94 12.237
12/31/95 15.754
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MONEY MARKET SUBACCOUNT
The subaccount's standardized yield for the seven day period ended
December 31, 1995 was computed by dividing 1 by the unit price for December 24,
1995, then multiplying this by the unit price on December 31, 1995 to get a base
period return. The base period return is then multiplied by 365 days and then
divided by 7. This calculation for the seven day period ended December 31, 1995
was as follows:
((1 / 1.366126) x 1.367592) -1 = .001073 - Base Period Return
.001073 x (365 / 7) = .0559 or 5.59%
The compound or effective yield for this same period is calculated by taking the
base period return and adding 1, raising the sum to a power equal to 365 divided
by 7 and subtracting 1 from the result. This calculation for the seven day
period ended December 31, 1995 was as follows:
365/7
(.001073 + 1) -1 = .0575 or 5.75%
Date Unit Price
------ ----------
12/24/95 1.366126
12/31/95 1.367592
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
AGGRESSIVE GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,237.05 $1,237.05 - $1,000
------------------ = 23.70%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,176.10 - $1,000
------------------ = 17.61%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,237.05/$1,000 - 1 = 23.70%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,176.10/$1,000) - 1 = 10.50%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/94 $10.000
12/31/94 9.796
12/31/95 12.461
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH & INCOME SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,247.59 $1,247.59 - $1,000
------------------ = 24.76%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,220.40 - $1,000
------------------ = 22.04%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,247.59/$1,000 - 1 = 24.76%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,220.40/$1,000) - 1 = 12.67%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/94 $10.000
12/31/94 10.069
12/31/95 12.904
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
HIGH YIELD SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[ $181,896 6
2 * { ------------------------ + 1] - 1} = 4.37%
[((2,321,419 * 10.941))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,122.53 $1,122.53 - $1,000
------------------ = 12.25%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,024.10 - $1,000
------------------ = 2.41%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,122.53/$1,000 - 1 = 12.25%
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,024.10/$1,000) - 1 = 1.44%
Unit Value Information
----------------------
Unit
Date Value
---------- --------
05/01/94 $10.000
12/31/94 9.452
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,124.00 $1,124.00 - $1,000
------------------ = 12.42%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,124.00/$1,000) - 1 = 12.42%
Unit Value Information
----------------------
Unit
Date Value
-------- --------
01/01/95 $10.000
12/31/95 11.590
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
INTERNATIONAL STOCK SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,092.20 $1,092.20 - $1,000
------------------ = 9.22%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,092.20/$1,000) - 1 = 9.22%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
01/01/95 $10.000
12/31/95 11.272
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL BOND SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[ $31,423 6
2 * { ---------------------------- + 1] - 1} = 2.83%
[ ((574,142 * 11.743))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,174.30 $1,174.30 - $1,000
------------------ = 17.43%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,174.30/$1,000) - 1 = 17.43%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
01/01/95 $10.000
12/31/95 11.743
